Business expense tracking is more important than you may think. Here’s why.
If you’re like most small business owners, you don’t wake up in the morning thinking, “I can’t wait to track my business expenses today!”
And that’s fine—as a small business owner myself, I feel the same way. In fact, I sometimes delay tracking my business expenses, but come tax season, I find myself in a panic as I try to get all my ducks in a row.
Afterward, I think: “How much time and stress could I have saved had I been just a little more diligent in the prior months?”
And that’s the thing: Business 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, you’ll learn about the following:
- Why expense tracking is important
- How to easily track small business expenses without the hassle of spreadsheets
- 6 of the best business expense trackers you can use
Table of Contents
Why Business Expense Tracking Is Important
1. You Better Control Your Cash Flow
Just a quick refresher: Cash flow is the total money flowing in and out of your business. Your goal is to maintain a positive cash flow (more money flowing in than out), especially as a lack of cash is commonly cited as one of the main reasons small businesses fail. Article, after article, after article highlights this.
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 expense tracking so that you don’t get to the end of the month and find that expenses outstripped income. Daily tracking ensures you have a better handle on how much money is leaving your business during the month.
By keeping tabs on it and comparing it against how much money is coming in, you can quickly pinpoint where there may be any shortfalls. Then, you can make adjustments to your spending—and even find ways to make more income.
2. You Spend More Responsibly to Stay Within Budget
By tracking business expenses daily, you can also better control costs, and 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 budget—and you can make adjustments as needed. The entire process helps you become more financially aware.
With this knowledge, you can fix and improve your spending habits.
You’ll save money—which improves your bottom line—and free up cash that you can invest in other crucial business areas. Ultimately, you’ll improve your money management skills.
3. 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 business receipts on laptops and in wastebaskets 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. And many expenses are tax-deductible, which means you could get your money back. These expenses include:
- Business lunches and meetings
- Cell phone and internet costs
- Bank fees
- Professional services fees necessary for your business to function
- Travel expenses, e.g., fuel to attend a client meeting
- Office supplies such as stationery
- Rental payments
- Advertising and marketing
- Charitable contributions
- Business insurance
- Home-office expenses
But you can only get money back if you track, categorize, and disclose these business expenses. Failure to keep accurate records means you leave hard-earned cash on the table and in the hands of the taxman.
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, can help you attract investors, funds your day-to-day, and aids in getting loans.
Considering the importance of profitability, you’d think most small business owners would stay on top of it. After all, who wouldn’t want to know how profitable they are at a glance?
In reality, many business owners struggle to calculate profitability because they don’t keep accurate income and expense records. Sound familiar?
Fortunately, by tracking expenses and income, you can quickly determine your profitability without digging through records.
Daily expense tracking will also prevent you from making educated guesses about profitability. Indeed, many small 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.
5. 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 keep your team happy because they don’t have to chase you to remind you of the expense claims they filed over a month ago.
How to Track Business Expenses
If you’re like many small business owners that track their expenses, you fall on the spectrum of keeping a shoebox of receipts that you give your accountant or bookkeeper and creating spreadsheets you update with receipt information by typing in the data instead of using a business expense tracker app.
While this sort of manual approach to expense tracking may seem adequate, it has many problems:
- Business receipts can easily get lost, which means you can’t claim specific tax deductibles
- Staying organized becomes hard due to all the receipts and consequent clutter
- Filing tax returns becomes more time-consuming as you often have to look for the financial data
- Data entry takes time as you manually update spreadsheets to track expenses
- It’s easy to procrastinate on doing the tedious work of tracking expenses with the work building up
The easier way to track expenses is to invest in cloud accounting software that lets you:
- Connect your business credit cards and bank account to the accounting software for automatic expense tracking. Every day the accounting software updates with the latest spending, so you don’t have to remember every transaction and can focus on the bigger picture.
- Capture expenses by taking a photo of the receipt with your mobile phone. You can track expenses while on the road and no longer have to worry about losing paper receipts as they’re stored in the cloud. With cloud storage, your tax records will be more secure if you’re ever audited. You also don’t have to worry about losing spreadsheets if your computer crashes or losing receipts if your house is damaged.
- Easily categorize the expenses and keep them in one central place, so you’re prepared come tax time. Don’t forget to review classifications regularly to ensure they’re up-to-date. You can create important financial reports from there to see where your business stands.
- Mark any expenses as billable and add a markup, then pull that information over to an invoice so you can get paid.
6 Business Expense Tracker Apps to Use
With an understanding of why you should track expenses and how to do it, here are 6 business expense tracker apps you can use.
FreshBooks is an all-in-one accounting software for small businesses that allows you to:
- Sync your bank account or credit card for automatic expense tracking
- Capture and record expenses on the fly via the mobile app
- Easily categorize business expenses for tax time and stores them in the cloud for secure and easy access
- Mark expenses as billable, when needed, which you can then transfer to an invoice to send to a client
But FreshBooks is more than an expense tracking app. It allows you to send invoices, manage payments, track time, track income, manage projects, access financial reports to see, at a glance, how your business is doing—and more. For instance, on the FreshBooks dashboard, you can instantly view your profitability for the year so far, revenue streams, and spending.
Bench is an expense tracker app that’s ideal if you have little time to track and manage expenses. Bench provides you with a professional bookkeeper at an affordable price. Bench does all the bookkeeping work for you, importing, capturing, reviewing, and categorizing business expenses.
It also provides more advanced features and services by sending you financial reports monthly to understand your financial situation and work with your accountant to deliver the right financial information for your tax return.
Expensify is a solid, all-round business expense tracker that offers receipt scanning and the ability to:
- Import credit card and bank transactions
- Create and submit expense reports—and delegate access to those who can approve reports on your behalf
- Import general ledger codes from your accounting software or bookkeeping system to help tag and categorize expenses
- Pay bills and generate invoices
- Automatically reimburse employees for expense claims
- Detect duplicate receipts and valid transactions, which helps with auditing and compliance
WellyBox is a receipt app that collects your receipts from Gmail or Office 365 and organizes them in one central dashboard, so you don’t lose receipts and waste time searching for them. You can then sync receipts in bulk to Dropbox or Google Drive.
WellyBox also provides a mobile receipt scanner so you can upload receipts on the go. Plus, you can create monthly, quarterly, or yearly business expense reports to help identify spending patterns.
At its core, Everlance is an automatic mileage tracker. But it can also:
- Sync your credit card and keep business and personal expenses separate
- Set aside money for taxes, so you don’t get any surprises come tax time
- Scan your transactions to identify potential tax deductibles
- Manage all expense reports in one system
- Give you access to IRS-compliant mileage and expense reports
Viably is an all-in-one financial app that helps you take care of your business finances by providing the tools you need in one place. Use it to:
- Connect your accounts and see one centralized view of your finances, including categorized business expenses and collections
- Get access to virtual cards with zero fees that you can use to separate your advertising spend on Amazon, Google, and Facebook
- Manage payments by viewing payment trends and predictions—and send payment reminders
- Get notified of irregular expenses, saving opportunities, and how spending impacts your finances
The Bottom Line on Expense Tracking
Tracking business expenses is crucial. It allows you to:
- Better control your cash flow
- Spend more responsibly and stick to a budget
- Prepare you for tax season—and get money back
- Calculate your profitability
- Make your employees happier
- Become more aware of how you’re spending your money
- Improve your overall money management
Of course, to achieve any of these benefits, you need to track your expenses properly in the first place and invest in the right tools. Not only will these tools help minimize the chore of tracking expenses, but they’ll also ensure your records are up to date at all times, giving you greater control over your costs.
FreshBooks is one such tool. This small business accounting software makes expense tracking a breeze.
Connect your business 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 knowing that FreshBooks has done the heavy lifting for you by classifying all your expenses.
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This post was updated in December 2022.