When you’re immersed in the day-to-day running of your business, it’s easy to get caught up in how you believe your business is performing financially vs how it really performs. Keeping track of your business expenses allows you to take a step back, look at the big picture, and properly assess your finances. This also leads to proper bookkeeping, which allows you to understand when your business will break even (when there is no profit or loss), calculate your quick ratio (your ability to pay any money you owe using only cash or assets that can be converted to cash quickly), study patterns in your data, and develop projections. When you know where your business stands financially, you can make informed decisions since you have a better grasp of what is and isn’t working. Keeping track of your expenditures over time enables you to forecast future costs and manage your cash flow (the money moving in and out of your business). Furthermore, since cash flow issues are the leading cause of small business failure, keeping track of both regular and unanticipated expenses is critical. One of the best things you can do to make tax season less stressful is to track and categorize your expenditures throughout the year. You’ll save time and difficulties, reduce workload, and avoid or reduce prospective costs for your accountant.
Here are four tips to track your business expenses:
- Digitize receipts using your phone’s camera
As you may know from experience, sitting down around tax season with a stack of withered receipts on your office table may be overwhelming. It may be difficult to tell which receipt relates to which expense (particularly if you have personal and business transactions on the same receipt) because ink fades and receipts become more difficult to read with time. By digitally collecting and filing your receipts as you go, you’ll save time and headaches. Make a habit of photographing and submitting business costs to Qoba as soon as possible so that they may be properly accounted for. You must have a receipt if you wish to claim anything as a business expenditure, which is why you should save all of your receipts. If you ever get audited, they’ll want to see receipts for every cost you claimed, and having a clear digital record to refer to makes it much simpler for everyone.
- Organize and track your expenses using software like Qoba
You can categorize your transactions and costs when you utilize software with accounting capabilities, such as Qoba. This enables you to generate relevant reports so that you can understand precisely where your business stands financially and make informed decisions.
After categorizing the expenditure, double-check that you’ve included any appropriate taxes and any relevant transaction notes. If you took a customer out to lunch, you’d label the item as Entertainment and utilize the notes area to record what the meal was for and who was there. Remember to keep account of any business use of your house or car, if applicable.
- Create a separate bank account for your business
When you have a separate business bank account, tracking and categorizing your business expenses and handling your bookkeeping is a breeze on Qoba. As a business owner, if you need to make or receive cheques in your business name, you’ll need a bank account designated as a “Business bank account.” You will also list all the accounts you use in your business and indicate which account paid for which expenditure, this helps when it comes to reconciliation. Using a personal bank account as your business account is an option if you’re a sole proprietor and don’t need to issue or receive cheques in the name of your business. Keeping a second card for business expenses is also recommended. Only use one of your cards for business purchases if you have more than one available to you. There is no need to worry about separating business and personal spending from one receipt, which may be a pain and make you more prone to put off classifying your expenses.
- Regularly review and classify your business expenses.
As a business owner, you should make it a practice to evaluate your expenses on a regular basis to ensure that your transactions are correctly classified. Make it a habit to analyze your expenses on a regular basis (maybe as part of your weekly review) to ensure that all transactions are appropriately classified. This will assist you in maintaining accuracy in your reporting. Don’t worry if you come across anything that you’re uncertain how to classify. Make a note of it and return to it when doing your monthly or quarterly accounting review. By categorizing and keeping track of your business expenses, you’ll be able to monitor the financial health of your business throughout the year. You’ll be able to monitor precisely how much you’re spending, whether you’re profitable or not, and make any required changes as you go.