When it comes to having a small business, it can be pretty tedious to track small business expenses, especially when tax season comes around. However, using the right tools and methods for tracking business expenses can help you keep tabs on how much you’re spending for your small business, thus increasing profitability on your end.
In this article, we’ll show you 4 ways to better track your business expenses:
- Opening financial accounts for your business
- Storing your receipts properly
- Making spreadsheets, AND
- Using Cloud Accounting software
1. Open A Business Financial Account
Distinguishing between your personal and business finances can be a chore for most freelancers and small businesses. Instead of waiting until tax time to dig around for business expenses among personal purchases like groceries and miscellaneous things, have financial accounts for your business – a checking, a savings, and credit card. Plus, try not to spend too much cash, or else you’ll be forced to keep track of paper receipts. Instead, opt for digital transactions, which keep track of your expenses in your bank statement.
2. Use Proper Storage For Receipts
When it comes to receipts, you’ll most likely have both paper and digital.
For paper receipts, here are ways to keep them organized:
- Have a separate envelope in your purse or bag to keep your business paper receipts in. If you can’t file receipts daily, then at least do it once a week.
- Use file accordion folders (or a file cabinet) to file your receipts accordingly.
- Use binders with the plastic sleeves labeled by month or category.
- Write on receipts what the purpose of the purchase was.
Plus, keep in mind that the IRS will want you to keep receipts (including bank statements) for at least three years.
As for digital receipts, they’re easier to track since there are many apps to help you do so. Scanning your receipts is one option. Or, you can use tax apps to track your mileage for both tax and invoicing.
Apps like FreshBooks lets you do the following to track your expenses:
- Lets you take photos of your paper receipts
- Lets you save photos of paper receipts in the cloud
- Automatically adds expenses to your books
- Tracks mileage for both tax and invoicing purposes with Everlance
3. Create A Spreadsheet
If you’re just starting out in your small business, or if you don’t want to be too tech-savvy, then creating a spreadsheet is a good method to try. This method also lets you import sheets into an accounting software by batching add expenses.
Regardless of whether you use Excel or Google Sheets, be sure to have the following columns in your spreadsheet:
- Type of Vendor
- The cost
- The purpose of the purchase
In addition to said columns, also have the following categories in your spreadsheet:
- Meals with clients
- Rent/Mortgage and utilities for home office or regular office
Once your business begins to expand (along with your business expenses), you’ll need a more sophisticated tracking method like cloud accounting. Speaking of …
4. Utilize Cloud Accounting
Cloud accounting is an easy way to track your expenses on the go. Many cloud accounting software come in apps, to which you can check your phone while you’re doing other things like meeting with clients, traveling to a conference, and so on.
Plus, cloud accounting software can connect to your business bank account and credit card, so that your expenses are updated on a daily basis – another reason why digital transaction tops cash!
In addition, your cloud accounting software can get you more money come tax season. Yes, even your subscription to cloud accounting software can be tax deductible.
And best of all, your tax records are made more secure, in case you ever get audited by the IRS. Even when your spreadsheets disappear due to a computer crash, or if you happen to lose your paper receipts, your accounting data will still be in the cloud – safe and secure.
While it’s true that tracking your business expenses can be a chore at times, doing so can actually benefit your small business. And, if you track your expenses right – by following these 4 tips – then not only will you be more organized with your receipts and paperwork, but you’ll also be more prepared at tax time.
Lauren Groff is a small business writer at Write My Dissertation service. She helps with organization of receipts and paperwork.