So you’ve figured out how to start an LLC or other small business venture. You went through the business naming process, filed your Articles of Organization, signed your Operating Agreement, paid your dues, and dove headfirst into the world of small business ownership. That was a lot – congratulations! Pat yourself on the back and take a deep breath.
Now that you’ve laid the groundwork for your small business, it’s time to put some structures in place to keep your finances organized and start small business expense tracking. Efficient and accurate bookkeeping is critical to the success of your business. Thorough, consistent financial reports can help you effectively run and scale your business, create authentic and realistic budgets, save you money during tax season, and more.
Read on to learn the importance of tracking small business expenses, how to track expenses for small business, how expense tracking for small business can save you money in the long run, and how Collective can give you access to the best way to track expenses for small business.
The Importance of Small Business Expense Tracking
Why is tracking expenses for small businesses important? Tracking your business expenses is essential for financial management and can provide several benefits. Here are some of the main benefits of tracking your business expenses:
Improved financial management:
When you track small business expenses, it helps you understand where your money is going and how much you are spending. This knowledge can help you make better financial decisions, such as cutting unnecessary expenses, adjusting your pricing, or investing in areas that are generating the most revenue.
Accurate tax reporting:
Properly tracking your business expenses ensures that you are accurately reporting your expenses for tax purposes. This can help you avoid penalties, reduce your tax liability, and make tax time less stressful.
Better cash flow management:
Knowing your expenses helps you manage your cash flow more effectively. By tracking your expenses, you can anticipate when bills will come due, when you can expect income, and when you may need to make adjustments to your spending.
Improved budgeting:
Tracking your expenses helps you create a more accurate budget for your business. By understanding your expenses, you can set realistic goals and make more informed decisions about where to allocate your resources.
Improved decision-making:
Tracking your expenses provides you with the data you need to make informed decisions about your business. You can use this information to identify trends, anticipate problems, and make strategic investments.
As you can see, you will need to track expenses for small business activities if you want to survive and thrive. It provides you with the information you need to manage your finances effectively, make informed decisions, and achieve your business goals.
How Do Small Businesses Keep Track of Expenses?
While you can certainly do the manual labor of tracking and inputting all of your expenses into a spreadsheet – you can even go old school and use pen and paper (hey, we don’t judge) – an online small business expense tracker will make life easier by automating and streamlining the process. Whether you’re old school or new age, here are some steps to help you track your small business expenses:
Set Up a Separate Bank Account
It’s important to have a separate business bank account to keep your business finances separate from your personal finances.
Use Accounting Software
Choose an accounting software that fits your needs and budget. Some popular options include FreshBooks, and Xero.
Categorize Your Expenses
Create categories for your expenses, such as office supplies, rent, utilities, and advertising. Categorizing your expenses will help you see where you are spending your money and where you can cut costs.
Keep Receipts and Invoices
Keep all your receipts and invoices in a safe place. You can use a physical file or a digital file on your computer or cloud storage.
Record Expenses Regularly
Enter your expenses into your accounting software regularly, such as daily or weekly. This will help you stay on top of your finances and avoid the headache of trying to catch up later.
Reconcile Your Accounts
Regularly reconcile your accounts to ensure that your records match your bank statements.
Review Your Expenses
Review your expenses regularly to identify any patterns or areas where you can cut costs. This will help you make better financial decisions for your business.
By following these steps, you can track your small business expenses effectively and efficiently.
Types of Expense Tracking for Small Business
There are many different types of business expenses, and they can vary depending on the nature of the business. Here are some common business expenses that many small businesses incur:
- Rent: The cost of renting or leasing office or retail space.
- Utilities: The cost of electricity, gas, water, and other utilities necessary to run your business.
- Office supplies: The cost of office supplies such as pens, paper, printer ink, and envelopes.
- Equipment: The cost of purchasing or leasing equipment such as computers, phones, furniture, and machinery.
- Advertising and marketing: The cost of promoting your business through advertising, marketing, and public relations efforts.
- Insurance: The cost of insurance premiums for liability, property, and worker’s compensation.
- Travel expenses: The cost of travel for business purposes, such as flights, hotels, and meals.
- Salaries and wages: The cost of paying employees’ salaries and wages.
- Professional fees: The cost of hiring professionals such as lawyers, accountants, and consultants.
- Taxes: The cost of paying taxes such as income tax, sales tax, and payroll tax.
It’s important to note that this is not an exhaustive list, and that some businesses may have additional expenses that are unique to their industry or operations. See our common business expenses list for a more complete roundup.
How Collective Can Help with Your Small Business Expense Tracking
Now you know how to keep track of small business expenses! We know, it’s kind of a lot. Understanding how to keep track of expenses for small business usually isn’t as easy as it seems, and it eats up your most important resource – time! If you don’t want to handle the small business expense tracking for your small business or Business-of-One, Collective is here to help by acting your expense tracker for small business.
For a flat monthly fee, Collective will help you facilitate necessary filings as you form your business entity, do all of your monthly bookkeeping, manage your payroll and payroll taxes, prepare both your personal and business income tax returns, and help you keep track of small business expenses like a pro.
