How to track expenses for small business​

It’s always a balancing act to run a small business. You are the CEO, the marketer, the salesperson, and sometimes even the bookkeeper. It’s easy to forget important things like keeping track of expenses when you have to do so many things at once. But not paying attention to your money is like driving with your eyes closed: you might be moving, but you don’t know where you’re going.

A business that is financially healthy needs to keep track of its expenses properly. It shows you exactly where your money is going, which is important for making smart choices, keeping your cash flow in check, and staying profitable. You won’t know how well your business is doing without it.

This guide will show you everything you need to know about keeping track of your small business’s costs. We will look at a range of options, from basic spreadsheets to advanced software, and give you steps you can take to create a system that works for you. By the end, you’ll have the knowledge and confidence to take control of your finances and steer your business toward success. 

Choosing a Way to Keep Track of Your Expenses

The first thing you need to do is choose a method that works for your business, your budget, and your personal taste. There isn’t one answer that works for everyone, so think about the pros and cons of each choice.

Spreadsheets by hand

A simple spreadsheet is where a lot of new business owners start when it comes to keeping track of their expenses. It’s a simple and cheap way to get your life in order.

• Pros:
  • Free to Start: You can use Microsoft Excel or Google Sheets to make a free template for tracking your small business expenses.
  • You can change it: You can change the layout however you want to meet the needs of your business.
  • Simple to Use: If you’re familiar with basic spreadsheet functions, the learning curve is minimal. 
• Cons:
  • Takes a lot of time: It can be boring and time-consuming to enter data by hand.
  • Easy to Make Mistakes: It’s easy to make mistakes like typos or formula errors, which can make financial data wrong.
  • Limited Functionality: Spreadsheets don’t have the advanced features of accounting software, like automatic bank feeds and in-depth reporting.

The best ways to use spreadsheets are: If you want to use this method, make a spreadsheet in Excel or Google Sheets for your small business’s income and expenses. Make columns for the date, vendor, type of expense, amount, and payment method. Keep it up to date so you don’t have a lot of receipts to deal with.

Accounting Software

As your business grows, you’ll likely need a more robust solution.  Accounting software is made to make managing finances easier and faster, which makes it a great choice for keeping track of expenses online.

• Pros:
  • Automating: Link your business bank accounts and credit cards so that transactions are automatically imported. This will save you hours of typing.
  • Accuracy: Automation lowers the chance of human error, making your financial records more trustworthy.
  • Full Reporting: With just a few clicks, you can make detailed reports, such as profit and loss statements, that will help you understand how your business is doing financially.
  • Scalability: These platforms can grow with your business and have features like payroll, invoicing, and inventory management.
• Cons:
  • Cost: Most accounting software needs a monthly subscription fee.
  • Learning Curve: Even though it’s easy to use, it may take some time to learn how to use all of its features..

Popular Features: Look for software that lets you scan receipts, connect to your bank, create your own expense categories, and make financial reports.

Mobile Apps

 Business owners who are always on the go can use mobile apps to keep track of their expenses in real time.

• Pros:
  • Convenience:  It’s easy to take pictures of receipts and log expenses right away from your phone, no matter where you are.
  • Real-Time Tracking: Keeping your financial records up to date will help you budget and manage your cash flow.
  • Receipt Management: You can take a picture of a receipt with many apps and have them automatically pull out the important information, so you don’t have to keep paper copies.
• Cons:
  • Limited Features: Standalone apps might not have all the features that desktop accounting software does.
  • Problems with integration: Make sure the app works well with your main accounting system so that data doesn’t get stuck.

How to use it: Pick an app that works with your accounting software. To make sure you don’t miss anything, make it a habit to write down your expenses as soon as they happen.

Putting Your Expenses into Groups

It’s just as important to know what costs to keep track of for a small business as it is to know how to do it. Properly categorizing your expenses helps you understand how you spend your money, get ready for tax season, and make smart budget choices.

Categories of Common Expenses

Most small businesses will have costs that fit into these common categories, even though they may be different in different industries:

• Cost of Goods Sold (COGS): Direct costs related to producing your goods (e.g., raw materials, direct labor). 
• Marketing & Advertising: Costs for promoting your business, like ads on social media, website costs, and print materials, are called marketing and advertising.
• Office Supplies: Are things like paper, pens, and printer ink that you need every day to run your office.
• Rent & Utilities: Are the costs of your physical workspace, such as rent, electricity, water, and the internet.
• Salaries & Wages: Are the money you pay your workers, including payroll taxes.
• Professional Services: Fees paid to lawyers, accountants, consultants, and other professionals for their services.
• Software & Subscriptions: Monthly or yearly fees for business software, like CRM and project management tools.
• Travel & Meals: These are things like business licenses, permits, and property taxes.
• Taxes & Licenses: Business licenses, permits, and property taxes.

How to Put Things in the Right Category

• Be Consistent: Every time you have similar expenses, put them in the same category. For example, always categorize your web hosting under “Software & Subscriptions” or a dedicated “Website Expenses” category. 
• Make Subcategories:  Break down big groups into smaller ones for a more in-depth look. You could break “Marketing” down into “Online Advertising,” “Content Creation,” and “Events,” for example.
• Talk to an accountant:  Ask a professional if you’re not sure how to classify an expense, especially for tax reasons.

Getting Your System Ready

It’s time to set up your system now that you’ve picked a method and made your categories.

Making a Spreadsheet for Business Expenses

Start with a template if you’re using a spreadsheet. You can get a small business expense tracker for Google Sheets or Excel from the internet. A good template for a spreadsheet of expenses for self-employed people should have:

• Date: The day the expense was made.
• Vendor/Supplier: The person you paid.
• Description: A short note about the purchase.
• Category: The type of expense (use a drop-down list to keep things consistent).
• Amount: The total price.
• How you paid (for example, with a credit card or a bank transfer).
• Attached Receipt?: A “Yes/No” column to keep track of whether or not you’ve saved the receipt.

This business expense sheet in Excel or Google Sheets will be your main record.

Setting Up Accounting Software

If you’ve chosen accounting software, the setup process is usually easy to follow.

1. Link Your Bank Accounts: Connect your business bank and credit card accounts so that transactions can be imported automatically.
2. Make your chart of accounts unique: Look over the default expense categories and change them to fit your business.
3. Make Rules: Make rules that will automatically sort transactions that happen over and over again. You could, for instance, make a rule that says all payments to “Google” should be labeled as “Advertising.”

Best Ways to Keep Track of and Handle Expenses

You have to use a system all the time for it to work. Follow these tips to keep track of your spending.

Write down your expenses right away.

Don’t let receipts pile up.  Make time every day or week to write down what you spend. The longer you wait, the more likely you are to forget things or lose receipts. Using a mobile app can make this process easy. Just take a picture of the receipt as soon as you get it.

Keep Detailed Records

You need to keep track of all your business expenses, especially the ones you plan to deduct, according to the IRS. This includes:

• Receipts: Keep digital or paper copies of all your receipts.
• Invoices: Are bills that your suppliers and vendors send you.
• Bank and Credit Card Statements: These are backup copies of your transactions: bank and credit card statements.

Use a cloud storage service like Google Drive or Dropbox to keep digital copies of your receipts. Organize them into folders by month or expense category for easy retrieval. 

Looking at your spending to see how it can help you grow

It’s not just about keeping track of your money when you track your expenses. It’s about getting information that will help your business grow. Looking at your spending on a regular basis can help you find ways to save money and make more money.

Make and look over reports

Make monthly or quarterly expense reports with your accounting software or spreadsheet. Look for: 

• Trends in Spending: Are some types of expenses growing faster than others?
• What you planned to spend vs. what you actually spent: How much more or less did you spend than you planned?
• Largest Expenses:  Find the three to five most important categories of your expenses. Is it possible to lower any of these?

You might notice, for example, that the cost of your software subscription has gone up. If you look at your finances, you might find that you’re paying for tools you don’t use anymore, which is an easy way to save money.

Identify Cost-Saving Opportunities 

You can make smart choices by looking at your spending. You might want to look into other carriers if your shipping costs are high. If you buy a lot of office supplies, you might want to find a bulk supplier. Taking this proactive approach to managing costs can greatly improve your bottom line.

Tax Season: How to Get the Most Out of Your Deductions

One of the best things about keeping track of your expenses is that it gets you ready for tax season. Keeping accurate records makes sure you can claim all of your eligible deductions, which lowers your taxable income.

How to Understand Deductible Expenses

The IRS says that a business expense is deductible if it is “ordinary and necessary.” A necessary expense is one that is helpful and right for your business, while a common and accepted expense in your field is an ordinary expense.

Some common expenses that you can deduct are:

• Rent for your office space
• Wages for employees
• Office supplies 
• Software for business
• Costs of advertising and marketing

It’s important to know the rules for more complicated deductions, like the home office deduction or using your car for business.

Get help from a tax professional

This guide gives you a good starting point, but tax laws are complicated and change all the time. One of the best things a small business owner can do is hire an accountant or tax professional. They can give you personalized advice, make sure you’re following all the rules, and help you save the most money on your taxes.

Your Way to Clear Finances

A simple, consistent way to keep track of your business expenses is the first step to taking charge of your finances. No matter if you use a simple spreadsheet or full accounting software, the most important thing is to be careful. You’ll have the financial clarity you need to make better choices and grow your business by keeping track of every transaction, putting it in the right category, and looking at your spending on a regular basis.

We’re here to help if you feel overwhelmed or just want an expert to help you set up the right systems for your business. Business Kiwi’s team is great at helping small business owners with their finances. Make an appointment with us today so we can work together to make your business’s financial future better.