A lot of responsibilities come when you’re planning or have already started your small business. One such responsibility is tracking and organizing your business expenses.
By organizing business expenses properly, it gives you insight into the profit and loss of your business. Therefore, as a small business owner, it becomes essential to manage the finances of your business and take proper care of recording expenses, tracking, and most importantly analyzing unwanted expenses.
Moving ahead, let’s check how to organize expenses for a small business and stay on top of your small business expenses.
Table of Content
Common Business Expenses To Manage
Let’s highlight some of the common business expenses that you need to manage on a daily, monthly, and yearly basis.
- Employees’ salary and commission bonuses.
- Fees for opening and managing bank accounts, credit cards, and loans.
- Fees for licenses and professional services such as accounting, legal, and consulting.
- Marketing & advertising expenses like business cards, brochures, and website development and maintenance.
- Business insurance policies like auto, malpractice, liability, and property.
- Uniform and protective gear while performing a job.
- Internet, business phone, and cell phone fees.
- Employee’s training session to enhance professional development.
- Equipment required for your business.
- The payment for office space renting, equipment, warehouse, and vehicles.
- Travel, meals, and entertainment expenses.
- General repairs to fix something in your office like a plumbing leak or broken printer.
- Supplies/Materials like printer paper, pens, pencils, books, and cleaning supplies.
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10 Tips To Organize Your Small Business Expenses
Get off to the best possible start on organizing and managing your small business expenses with these 9 exclusive tips.
Open Your Business Bank Account
To manage all your business expenses, you must have a business bank account, and you must use it only for your business transactions.
Remember that you should not use personal expenses from a business account and vice-versa. Otherwise, the bank may use your business account.
Opening a business bank account is very simple. But, first, you must be ready with your details and business details.
- Personal details: Your name, address, birth date, social security number, ownership percentage in your business, and most important government-issued photo ID.
- Business details: Your business name, DBA (Doing Business As), business address, Employer Identification Number, and entity type.
Startup Business Cost
You’ll need huge capital for starting and setting up your new small business. And to organize such costs, you’ll have to keep control of your expenditure. The best recommendation is to group them by type.
Generally, there are two categories involved in startup business costs: recurring and one-time expenses.
- Recurring expenses: The expenses that are probably going to be paying on a monthly basis, such as rent, utilities, and employee salaries.
- One-time expenses: The expenses that you need to start your business like permits, furniture, equipment, licenses, and fees.
Use a Spreadsheet
Using a spreadsheet is a low-tech approach that helps you track your business expenses, especially if you have just started your new business.
Once your business grows, you need to adopt a technologically advanced tracking method like accounting software.
If you create a spreadsheet from scratch, you need to track every business expense manually you perform daily. Also, you need to be ready with your categories and sort them as per your business needs.
Spreadsheets, whether you use Excel or Google Sheets, both are easy to import into your accounting software to batch add expenses.
Digitize Your Hard Copies
Dealing with a lot of paper is a very tedious task.
So, it’s better to digitize most of your financial paperwork to stay organized in your business. It is made possible by saving your documents digitally and protecting them using third-party security service platforms.
Never make the mistake of storing anything on your computer as there are more chances of losing your files.
- Accounting and bookkeeping records
- Bank records
- Tax papers
- Contracts, including leases and purchase agreements
- Trademark applications and patents
- Permits and licenses
- Employee records
Save and Organize Receipts in Different Locations
The next essential tip that you can follow in your business is organizing the receipts in various ways.
- Google Drive: It is a cloud-based platform where you can keep all your records or receipts. It supports Google Document, Google Sheet, Google Presentation, and many other tools that bring convenience in creating and sharing information.
- Use folders: Make folders as per your business requirements. You can even create sub-folders and include more details about receipts, making it easy for you to find them whenever you need them.
- Use Evernote: You can create notes related to receipts and store them in digitized format. It’s an app so that you can access your information whenever and wherever you need it.
- Use WellyBox: It’s a web-based app that quickly collects all your essential information and helps you generate an expense report.
Make a Habit To Use Accounting Software
Using a spreadsheet to manage your business finances on an initial level is a good option. But as your business grows, it becomes challenging for you to deal with manual transactions.
Accounting software easily records and categorizes financial transactions; helps you pay bills, send customer invoices, manage payroll, and run standard reports directly in the platform.
Accounting software makes your work easier and faster to manage your business expenses.
- It saves your hours of work by managing manual bookkeeping and accounting processes through accounting tips.
- It automatically generates your daily, weekly, monthly, and even yearly reports.
- All your financial data is in synchronization via API.
- It creates professional-looking financial statements.
Connect Your Bank Account With Accounting Software to Import transactions.
Generally, your small business can include different levels of integration support systems with its bank to import multiple transactions. But it entirely depends on the software solution you select.
A small business owner needs to download credit card and bank statements and manually import them as CSV (Excel) files into the system.
Accounting software offers a connectivity plug-in that acts as a digital link between the bank account and accounting software. Moreover, it allows you to import bank transactions daily, along with statements.
In addition, some accounting software offers direct integration to the bank, so the small business owner can manage and complete all banking in the accounting system without logging into the bank account portal.
Select For a Cash or Accrual Accounting
To develop a consistent accounting method for managing business finances, small business owners need to define a set of rules for analyzing when to report income and expenses.
Who can use accrual accounting or cash-based accounting?
Generally, small businesses with $25 million or less in annual gross receipts for the three prior tax years.
Accrual accounting is one of the recognized accounting methods under generally accepted accounting principles (GAAP). And even most private companies with some limited exceptions use this approach for financial reporting.
Cash basis accounting is a straightforward approach and easier to manage for small businesses. It simply records the transaction once the payment is received. Expenses are deducted in the tax year they are paid.
On the other hand, accrual basis accounting records the transaction on completion of service or the sale. Thus, it allows businesses to deduct it in the tax year it was incurred, regardless of when the payment is made.
Accrual accounting requires double-entry bookkeeping and paints a more accurate and complete financial picture because it takes a long-term view of the business.
Hire a Bookkeeper
Many times, you might find it challenging to use accounting software. In that case, it’s better to hire an expert professional who can quickly deal with the business accounting purpose.
A bookkeeper will take care of almost every business expense and help you stay on top of expense tracking. Moreover, they’ll offer you essential advice when you are stuck using accounting software, helping you improve your financial situation, and make you ready to deal with issues and opportunities.
Moreover, a bookkeeper will help you provide regular weekly and monthly reports that help you look for trends and address them accordingly.
It’s not mandatory that you have to hire a full-time bookkeeper; you can also include a freelancer or a service that lets you pay by the hour for bookkeeping services.
Secure Your Business
Protecting a business is of prime importance for any small business owner. It may be by having business insurance or setting up an LLC or an S-Corp.
Having an LLC or S-Corp can easily separate your business identity and finances from personal finances. In addition, if you undergo any legal issues, then personal property and assets will not be liable at all.
It’s better to renew any essential certifications or licenses you need to remain compliant with by adding them to your calendar. To ensure any financial issues, protecting your business is the most efficient way.
What is bookkeeping?
Bookkeeping is the process of recording and organizing a business’s financial transactions, and a bookkeeper is a person responsible for that process. A business owner can easily identify if their business is profitable and identify areas of profit expansion.
How to categorize business spending on your taxes?
- Create a category for advertising.
- List vehicle expenses.
- Make a section for commissions and fees.
- Designate a category for depletion.
- Make a section for depreciation.
- List pension and profit-sharing plan expenses.
Which is the best accounting software?
The best accounting software is one that helps you track accounts receivable and accounts payable, have a clear understanding of your business profitability, and help you deal with taxation. Here are some of the best accounting software that you can try:
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Initially, you will find it tedious in organizing and tracking business expenses. By taking care of all the essential precautions mentioned here, they’re less likely to cause you headaches later on.
You need to examine business expenses that will help you grow your business. When it comes to managing the overall expenses and finance of your business, invoicing and accounting software will make your work easier by including all the important information in one platform and improve your cash flow.
While selecting an accounting and invoicing software, make sure you evaluate it on the basis of its features and functionalities.
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