10 Tips for Small Businesses to Track Their Expenses
New entrepreneurs start their ventures with the hope of gaining rich returns and dividends from them at the right time. One of the chief factors that keeps businesses running is capital. Investing in one’s own business requires one to either raise capital with help from others or pump in their own money to fund business operations.
Capital inflow and outflow are daily processes in any business as huge sums of money are spent as well as earned. Projections are made and decisions are taken, some quick, others well- thought out. But, at the end of the day, what matters the most is profit generation. Therein lies the importance of tracking your expenses.
Tracking expenses is important for small businesses as it gives them a good idea of the revenue earned against the money spent. This helps entrepreneurs chart their future course of action with much more clarity and confidence.
Mentioned ahead are some tips that small businesses can employ in order to effectively track their expenses.
1. Embrace Automation
It’s time to stop relying on calculators to do the accounting for your business. Several accounting programs are available for tracking and managing expenses in a way that is easy to understand. Most of them are error-free and produce quick results. When choosing accounting software for your business, make sure to get a program that is renowned and popular among accountants.
Additionally, it will have to be compatible with your system and your requirements too. Having such software in place will make it easy for your accountant to import business information, especially when it comes to filing your taxes. MS Excel also offers templates that enable you to track business expenses.
2. Keep the Professional and the Personal Separate
Keeping your professional and personal expenses separate will spare you a lot of grief as mixing them can result in major tax liabilities and accounting problems in the future. Apart from the expenses, you also need to separate your inventory and debt. This will make it easier for you to track them.
The temptation to merge household and company finances occurs when either of them is under strain. It makes sense to have separate accounts for each from the beginning and have at least 6 months of savings in both before you embark on your business to be on the safe side. This is crucial because raking in profits tends to take more time than we estimate.
Furthermore, if you want to grow and expand your business, you will probably have to take out loans, for which you will need a healthy credit score. It is, therefore, vital to avoid situations that can land you in debt that is difficult to repay.
3. Petty Problems
Designate one trustworthy person in the company for handling petty cash. This will make it easier to track the movement of your money and reduce confusion and errors. Although handling petty cash does not involve dealing with huge amounts of money, these expenses add up fast and can snowball into a big amount. Set clear guidelines regarding what the petty cash may be used for and eliminate unnecessary expenditure.
4.Do Not Procrastinate
It is advisable to record expenses as soon as they are made to avoid piling up of receipts. Procrastination in this matter can lead you to lose track of your financial data. Documenting such data regularly saves you time and ensures that your records are always up-to-date.
5.Save the Receipts
At the time of business audit, you may be required to produce certain receipts to document your tax-deductible expenses. It is suggested that you save your receipts and make a note of the purpose of the expense on each of them.
If you find it difficult to store physical copies of each and every receipt, digitize them with the help of a scanner or a smartphone and save them electronically to your computer or upload them to the cloud.
6.Use Credit Cards
It makes sense to get a credit card dedicated to business use. Making your business expenses using this credit card will help you organize your expenses and track them systematically i.e. monthly, quarterly, and annually. This should also be more convenient than carrying cash as most retailers now accept credit cards for small transactions as well.
7.Keep a Close Watch
Make the maximum use of your accounting software and track your expenses on a weekly/ monthly basis by generating financial reports and personally reviewing your transactions and revenues.
Based on this, you can also forecast trends and develop monthly, quarterly, and annual budgets. Monitoring your expenses will make it easier for you to determine whether they are in alignment with the allocated budget.
8.Visit Your Tax Advisor
Calculating taxes is always a tricky matter, even for the most accomplished of businessmen. Engaging the services of a certified tax advisor should help you in this regard. Whether it is analyzing the tax situation of the current fiscal year, forecasting for next year’s payments, or choosing a long-term payment plan, a tax advisor can be your best ally.
They are particularly helpful in suggesting tax-saving schemes and deductions because they are aware of several structures that may be ideal for your business. When meeting your tax advisor, do carry all your financial records, reports and relevant forms, and be prepared to discuss their intricacies as well as well as future plans.
9.Maintain a Budget
I know this has probably been said many times to you, but it is important enough to warrant repetition. Maintaining a budget is crucial to tracking your money. Examine your weekly expenses in detail and see how well your revenues stand against them.
Depending on how that looks, you may have to tweak your budget at times. Do not hesitate in doing so, but do ensure that you allocate enough funds to all the major departments of your business. In addition to that, set aside contingency funds for emergencies.
10.Know Basic Accounting
To be successful in business, it is imperative that you are well-versed with basic accounting tools and actively involved in the money management of your business, even if you’ve hired a qualified and experienced professional for doing so. Since money matters (a lot) in the business world, knowing the financial aspects of running a venture is as important as knowing about the product/service you’re selling.
Make the time to study or brush up on topics like bookkeeping and accounting to understand your investments. Track the movement of cash in and out of your business. This is called cash flow. Cash refers to your money in the bank which you need to pay your employees, suppliers, and creditors with.
Understand the difference between positive and negative cash flow as both indicate the financial health of your company. A positive cash flow is desirable as it implies more cash is coming in than going out. Conversely, a negative cash flow indicates more cash is going out than coming in, which means all is not well with your business.
Following your cash flow will help you track your money by determining if too many of your company’s assets are tied up in inventory, if you need to collect money that is owed to you, or if there just isn’t enough inflow of cash into the business.
Apart from that, you will also need to study your company’s balance sheet. A balance sheet presents a snapshot of your company’s financial situation at any given point in time. It lists your business’s assets and liabilities to arrive at its net worth. It also presents a clearer picture of what your business owns and owes at any given point.
Starting a business can be exciting, but the real challenge lies in turning it into a success and maintaining the momentum. Along with the several ups there will also be a few downs. You need to make knowledge and technology work in your favor to deal with the downs. Apart from that, the above tips should help you prepare for and weather the storms by keeping your expenses low and revenues high.