Tracking your business expenses is more important than you may think. Here’s why.
If you’re like most business owners, you don’t wake up in the morning saying, “I’m excited because I’m going to track my expenses.”
And that’s fine, as a business owner myself I feel the same way. In fact, I often delay tracking my business expenses but come tax season find myself running around like a headless chicken as I try and get all my ducks in a row.
Afterwards, I think: “How much time and stress could I have saved had I only been a little more diligent in the prior months?”
And that’s the thing; expense tracking is beneficial despite how mundane the task can be. But, saving you time and stress in tax preparation is just the tip of the iceberg. In this post, we look at several benefits of tracking your expenses.
1. You Become Financially Aware and Improve Money Management
If cash flow is so significant, surely you need to do everything in your power to better manage it, so you don’t fall into the trap of having too little?
One way you can do this is through daily expenses management so that you don’t get to the end of the month and find that expenses oustripped income.
By tracking business expenses daily, you can also control costs, see what you’re spending your money on and how much you’re spending. These daily figures become your marker to see whether you’re over or under your monthly budget. The entire process helps you become more financially aware.
Armed with this knowledge you can fix bad spending habits and make better ones.
You’ll not only save money—which has a positive impact on your bottom line—but free up cash that you can invest in other crucial business areas, e.g., your marketing department.
Ultimately, you improve your money management.
2. You’re Better Prepared for the Tax Season and May Get Money Back
Tax season is a dreaded time of the year for those who aren’t prepared. Scrambling to find those invoices and receipts on laptops and shoe boxes is not uncommon.
But this doesn’t have to be your experience.
By keeping meticulous records, you’ll have everything ready come tax time. No running around, no stress and no worrying about whether you’re losing money. You see, many expenses are tax deductible which means you could get money back. These expenses include:
- Business lunches and meetings
- Cell-phone and data costs
- Travel expenses, e.g., fuel to attend a client meeting
- Office supplies such as stationery.
- Rent expenses
- Home-office expenses: if you have home offices you may qualify for home-office write-offs. For example, if your home office is 20% of the size you can claim back 20% from utilities, maintenance, and so on.
But you can only get money back if you track, categorize and disclose these business expenses. Failure to keep accurate records means that you leave hard earned cash on the table and in the hands of the tax man.
3. You Keep Your Employees Happy
If you’re running a team of employees, they likely send you receipts for travel expenses, meals, and other out-of-pocket expenses.
By keeping an eagle eye on your expenses, you can promptly reimburse employees. Prompt reimbursements keeps your team happy because they don’t have to chase you to remind you of that expense reports they filed over a month ago.
4. You Can Quickly Determine How Profitable Your Business Is
You probably know how to calculate your profitability: Revenue minus expenses.
You likely also understand how important it is for your business. It tells you whether you’re making money, helps you attract investors, funds your day-to-day, and aids in getting financing.
Considering the importance of being profitable, you’d think that most business owners would stay on top of it. After all, who wouldn’t want to know how profitable they are at a glance?
The reality, though, is that many business owners struggle to calculate profitability because they don’t keep accurate records of their income and expense. Sound familiar?
Fortunately, by tracking expenses, often, as well as your income, you can quickly determine your profitability without digging through records.
Daily tracking will also prevent you from making educated guesses about profitability. Indeed, many businesses make this mistake—they see the sales coming in, but because they don’t track their expenses, they wrongly assume that their business is more profitable than it actually is.
Tracking business expenses is crucial. It allows you to:
- Become more aware of how you’re spending
- Improve your money management
- Prepares you for tax season
- Helps you get money back
- Makes your employees happier
- Plays a crucial role in calculating your profitability
Of course, to realize these benefits, you need to invest in tools that’ll help you track your expenses on the go. Not only will these tools help minimize the chore of tracking costs, but they’ll also ensure that your records are up to date at all times which gives you greater control over your costs.
Guess what?! FreshBooks is one such tool. The small business accounting software makes tracking expenses a breeze.
Connect your bank account to avoid manual entry, snap a picture of a receipt that you can upload to the cloud and determine how profitable you are with straightforward profitability reports. And, come tax time, take comfort from the fact that FreshBooks has done the heavy lifting for you by classifying all your expenses.
Why not start tracking expenses with Freshbooks? With a free 30-day trial you have nothing to lose.