Tips for Tracking Business Expenses

Whether spending a few pounds on a train ticket or investing thousands in a new piece of equipment, tracking all business expenses is important. Despite this, many small business owners can let expense management slip, particularly during busy times. How can you set up a failsafe expense tracking system, and what tools are out there to help you?

What are business expenses? 

Business expenses are any costs incurred in the running of a business. This includes everything from paying for utilities and office supplies to marketing costs and mileage. The important rule to remember is that any costs must be wholly and exclusively for the purposes of work. Expenses are deducted from profit to determine profit (or loss) and taxable income, so the figures you're working with must be accurate.

Benefits of tracking business expenses

In addition to determining how much tax you'll pay, understanding your expenses will also impact other business areas. For example, over time, you'll likely be able to identify trends in your spending, perhaps periods of more significant outlays or times in a year when you tend to spend less. This will help make forecasting more accurate and could identify the best time to make investments or help you determine how to allocate funds most effectively.

Tracking expenses will also simplify your financial reporting overall. Having accurate information to hand during reporting season will save you time and ensure you remain compliant. 

How to track business expenses

There are several simple steps that can be taken to ensure it's as quick, easy and painless as possible to track and manage expenses. These include:

Open a business bank account 

Having a separate bank account for business expenses is the first step in ensuring you have a straightforward way to track spending. Being able to conduct all your spending through this account will mean your business and personal finances can remain separate, so it's easy to see that any expenses incurred are entirely for business use. You can also set up a different business savings account and credit card, and you'll be building your credit score should you need to apply for funding in the future.

Choose accounting software 

Once you have a bank account, the next step is investing in accounting software. This will further simplify the recording process and ensure information is accurate and up to date. With accounting software, you can categorise expenses to see where you're spending the most money, compare costs, and see their impact on your profit and loss, thanks to the ability to create reports and view dashboards.

Connect your financial institutions 

Integrating your bank account with your accounting software will take expense management to the next level, ensuring business transactions are automatically synced in the software. With tools like AccountsPortal, it's even possible to set up feeds from multiple accounts so you can be confident your figures are accurate without lifting a finger. Doing this will also help you gain additional oversight as you'll have access to real-time financial information, the ability to create reports quickly, and enable automatic imports so nothing gets missed. All of this will reduce the time you need to spend tracking and managing your expenses.

Begin managing receipts properly 

Organising receipts can be one of the more time-consuming and unpopular aspects of expense tracking, but it is essential. Having receipts, or copies of them, is important when working out your tax liabilities as they provide proof of your expenditure. Storing piles of paper receipts isn't always feasible, so taking photos and keeping them digitally can be a better option. Another option is to look for software that lets you scan receipts, store them in the cloud and then sync that information with your books.

Record all expenses promptly

We've all been guilty of letting the receipts pile up while we wait for a quiet time to tackle them, but one of the most impactful ways to make expense tracking less demanding is to deal with all expenses promptly. This could be at each week's or month's end, but getting into a routine will help. The time you save by implementing these measures can then be used to review your expenses, analyse the numbers and learn from the information you're gathering. That way, good expense tracking will continue to benefit your business in the long term.

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Further Reading

Hospitality VAT rate set to rise to 12.5%: How to manage the change in AccountsPortal

A Guide to Capital Gains Tax for Small Businesses

How To Manage Out Of Pocket Expenses