There are a few methods you can use to categorize and record your business expenses: 1. Marketing and advertising: software subscriptions, direct mailers, website hostingĬost of goods sold: materials, inventory storage, packaging, labor Office: electricity bills, water bills, telephone costs, office supplies, and office equipment As you go down the list, you’ll start to see natural categories emerge. Start by making a list of your various fixed and variable business expenses, then jot down a note or two to describe each one. When you organize your expenses into categories, it’s easier to see patterns in your spending, identify unnecessary costs, and figure out how to adjust your cash flow. Learning how to categorize expenses for small business costs is crucial. From there, make sure to label your receipts and file them in easy-to-find folders on a cloud-based drive. For receipts that come via email, you can either screenshot the receipt or save a PDF copy of it. As you pay for business expenses-whether it’s gas for your delivery vehicle or updated inventory management software-take a few minutes to save and file your receipts.įor paper receipts, try using a receipt scanning app to upload a digital copy to the cloud. To save time and stress come tax season, it’s smart to get into the habit of digitizing and organizing all your business receipts. Having a designated business bank account and business credit card makes it easier to categorize and account for your various business costs. If you haven’t already separated your personal and business financial accounts, now is the time to do it. Before you choose one, though, set yourself up for success by taking the following steps: Separate your business banking from your personal banking. Tracking your business expenses doesn’t have to be complicated. How to manage small business expense tracking The expenses you track will vary slightly depending on your industry and business model, but in general it’s a good idea to keep tabs on the following: That includes operating expenses like software and marketing, as well as expenses related to goods and production, such as materials or storage.įor tax deduction purposes, the IRS defines business expenses as costs that are “ordinary and necessary.” That means any business expense you want to deduct should be a normal and essential part of maintaining operations. Which business expenses should you track?īusiness expenses refer to any costs related to running your business. ROI: Tracking your expenses-and measuring the outcomes of those costs-is a good way to determine your ROI for each cost.īudget: Tracking your expenses is key to creating and sticking to your business’s monthly, quarterly, and annual budgets. Taxes: Keeping a careful record of your expenses throughout the year makes it easier to maximize your tax deductions. Revenue: You’ll be able to create stronger revenue forecasts, which can help you set more realistic sales goals. Money leaks: When you regularly review your spending, you can more easily identify areas where you might be losing money. Small business expense tracking helps with the following areas:Ĭash flow: Monitoring your expenses helps you maintain healthy cash flow and create more accurate cash flow forecasts. When you know where your money is going each month, you can make more informed decisions about your spending and develop more effective growth strategies. Understanding your business expenses is the first step to improving your profitability. Why should you track your business expenses? If you’re not sure where to start, here’s how to learn more about the importance of tracking your expenses- and how to do it right. Small business expense tracking doesn’t just give you a better idea of your business’s overall financial health, it also helps you prepare for tax season. Tracking your business expenses may seem tedious, but it’s a key part of effective money management.
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