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DQ News: Quit Throwing Money Away! 14 Tips to Successfully Track Business Expenses

Why Business Expense Tracking Is Important And How To Do It

When you’re running a business, it’s important to track your business expenses. This should be an important on-going task for you.

Fortunately, you don’t have to struggle to do this as there are excellent practices and systems in place.  Staying on top of business expense tracking is not as much work as it sounds. Tracking business expenses is the foundation of a good accounting practice; this practice can save you many tax dollars.

What Are Business Expenses?

Any purchase that you make on behalf of your business, such as a mobile phone, a computer, a printer, a copier or so on that’s used for business is a business expense. You might make purchases that are to be used for both business and personal purposes, such as your mobile phone. In this case, you can legally claim a percentage of your mobile phone’s cost as a business expense.

Why Is It Important To Track Business Expenses?

Your business expenses comprise an important part of your business’ profit equation. If your business expenses are too high, you will lose out on the profit margin. If all your business expenses occur during a certain time of the year, then you’ll be strapped for cash. You’ll need sufficient cash flow throughout the year to manage your business.

When you tracking business expenses, you will always have a clear idea of how much you’ve spent and where the money was spent. You’ll also know how much you’ll have to spend in the near future. If you fail to track your expenses, balancing your checkbook will become a messy affair and you’ll be left not knowing if you have any funds to spend at all. That apart, forward planning will be affected. Without tracking business expenses, you won’t be able to estimate medium to short term cash flows. This means you won’t be able to plan for major expenditures, or even honor bills on time.

A Few Typical Business Expenses

Your business expenses depend on the type of business you run. Still, a few business expenses are common across businesses. Your accounting records will code each business expense to an expense category, to simplify matters. By using expense categories, you can easily see how much money is going to each category and evaluate the need for it. Having too many expense categories will not only be confusing but will need meticulous accounting and followup.

Major business expenses are incurred because of promotional and advertising costs, bank service charges, cash discounts, books, depreciation expenses, dues, subscriptions, equipment rental, insurance and gifts and donations, among others.

How To Track Business Expenses

You can There are one or two things you can do to make the job of tracking your business expenses just a bit easier.

1. Use full-featured accounting software to track both income and expenses. If your business is not very big, you can comfortably use tools such as Peachtree, Microsoft Office Accounting and Quickbooks. These tools will help you stay on track and monitor your company’s health. You can even generate periodical reports and dashboards using these tools.
2. If these tools seem too complicated or if the learning curve seems steep, you can explore personal finance software. Try Intuit’s Microsoft Money or Quicken; these tools are not just easy to use but they also help tracking both your finances and business expenses. You can also import data from Money or Quicken into several good tax software programs.
3. Once you buy the right software, the first step is to set up your expense categories properly. Using a good personal finance tool, you can add, delete, and edit expense categories.
4. Generate reports based on your expense category entries. Evaluate the amounts spent on each category based on fund allocation summaries for each category.
5. Personal finance software allows you to link your expense categories to specific line items on tax forms. Doing this will help reduce a lot of the time you’ll spend on your taxes.
6. Use your accounting program to generate profit and loss reports. These reports will provide the health monitor you need; you can know if you’re profitable and if you are spending money within limits.
7. If your business is large or if you are not able to track your business expenses on your own, hire a tax accountant to handle this task and your tax returns as well.

Tips To Help Track Business Expenses

• Create a separate bank account for your business; do not use this account for personal purposes.
• Use your credit card to make purchases; this way you can always use your statements to track business expenses.
• Use electronic bill pay facilities or use your credit card to pay as many bills as you can. You can stay on track of paid bills more easily this way.
• Whenever you make a purchase, even if the expenditure was no more than $50, ask for a tax receipt. Put away all your tax receipts in a safe place.
• Update your account books and account software on a regular basis. Leaving these tasks till the last minute can be overwhelming and might give rise to confusion and errors.
• Use your business bank account to pay for business expenses. This way you won’t have to keep an ongoing personal to business tally.
• Try to obtain an exclusive business only credit card and use this card only for business expenses.

About the Author: David Works for conversion rate optimization Company and writes on how to improve conversion rate of websites, landing page testing and affiliate marketing.

Photo Credit: joiseyshowaa

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