It’s not a secret that the key to a successful business lies in effective management. Many businesses have grown and died out because of the way they were managed and one crucial aspect of managing a business is tracking business expenses.
Why Does Expense Tracking Matter?
Information is success — not only does it help you detect when there’s something you’re not doing correctly, but it also helps you determine when there’s something you should be doing more often. You can’t make an informed decision if you don’t have data upon which to frame your decision. This is especially true when managing an eCommerce business that handles a lot of transactions, both in terms of direct sales and when addressing operating expenses.
How else will you be able to determine if your business is able to offset its expenses other than tracking your cash flow?
Tax-Deductible Business Expenses
Another major reason why you might want to consider tracking your expenses is because business expenses count toward a tax deduction, which is a deduction that lowers tax liability by lowering taxable income. Now, consider that in order to run a business, you need to address its operating costs.
Operating costs vary between businesses depending on the nature of the business itself. For example, a taxi service is going to have a lot of fuel expenses while a 24/7 convenience store is likely to have a heavy electricity expense. Now, consider the amount of money you spend to keep your business operational.
A significant amount can be deducted from your taxes by tracking and itemizing your business expenses. This can also help speed up the growth of your business, especially when you’re able to expand. A business expansion means that you’re going to be incurring greater business expenses. If you have a significantly higher amount of business expenses, any deduction in liabilities is going to help your finances.
However, as helpful as it may sound, take note that applying for a business tax reduction requires that you have to submit your report in the format dictated by the IRS, otherwise, your request may get declined. (More on this later)
So, now that we’ve established the importance of tracking your business expenses, what are the best ways to do this?
Hire a Bookkeeper
Expense tracking is far from the most exciting task in managing a business and as such, many business owners would rather hire someone else to do their accounting for them. This is often the best choice for small businesses that are growing. However, not everyone is able or willing to hire a bookkeeper. And so, they do their expense tracking themselves through the use of expense tracker apps.
Use Expense Trackers
Expense tracker apps are programs that are designed to track your expenses automatically. Some of them require manual input, while others can track your expenses automatically once you’ve set them up properly.
To make the most out of tracking your expenses electronically, look for an app that can be linked to bank accounts in order to track the expenses made on each account. If your business involves a lot of time spent on the road, you might want to consider an expense tracker app like Hurdlr that specializes in tracking car mileage, receipts, and of course, expenses. What sets this particular app apart from the rest is that it automatically prints out your report in the IRS-accepted format, which is going to be extremely helpful in lowering your tax burden.
You can also look for apps that allow you to scan your paper receipts and convert them to digital files — no more piles of faded receipt paper to sort through come tax time!
Keep Track with Spreadsheets
Spreadsheets are some of the most basic means to keep track of your expenses (or anything related to logistics, for that matter), but they can also be very cost-effective if you know how to create formulas with Excel. While this requires manual input, it is a reliable means to track your finances if you don’t have the budget to try other alternatives because it’s free. You don’t even have to set up the spreadsheet because there are a multitude of templates that you can download online.
Tracking expenses helps give business owners an insight into their profitability because it shows the operational and manufacturing expenses they will be able to write-off in order to lower their tax burden. Remember that data is important, not just because it gives insight into a business’ current standing, but also because it helps managers make sound decisions.