When you are a business owner, you have a lot to think about. Even if you are outsourcing some processes or you have a good team of workers behind you, you’re still the one who is responsible for everything. And if you don’t do or have these things, you have even more to do.
Adding more to this to-do list may not sound like a great idea, but when it comes to tracking your business expenses, it’s something that you must make time for – it is crucial for a wide range of reasons. Read on to find out what those reasons are.
Control Costs
What do you think is the leading cause of business failure? The lack of available funds is the main cause. Cash flow management is a skill that needs to be practiced daily for small enterprises. It’s crucial to do so otherwise ordinary costs quickly consume all available funds for the month.
Businesses can keep their budgets under control by keeping a close eye on their spending every day. The daily income and expenditure totals become a barometer for determining whether or not a company is exceeding or falling short of its budgeted goals.
If you can track your business expenses, you can see where you are overspending or even where you’re not spending enough and put measures in place to make things better. This might involve looking into business gas cards for fleets, for example, so that your fuel costs are kept in check.
It Can Help With Taxes
Keeping tabs on your spending might also help you out during tax season, which is perhaps the least pleasant time of year for most people. When tax time comes around, you’ll be ready to claim every deduction for which you’re eligible if you’ve been keeping careful records of your spending. Your taxable income will be reduced, and you can save money – perhaps a lot more money than you realized was possible.
Due to the fact that the IRS needs evidence of your outgoings and income to ensure you are paying the right amount of tax, you will need to keep all of your receipts and other paperwork to verify that your expenditures were “ordinary and necessary.” Travel, vehicles, education, meals and entertainment, inventory, advertising, your home office, and bad debt are just some of the many expenses that may be deductible from your taxable income.
Keep Your Employees Happy
Something that all business owners with employees must do is keep those employees happy and satisfied. In that way, they will be more loyal to the business, they will work harder, and they will have a better work-life balance themselves. It’s positive in many different ways.
So how does this factor into reasons why you should track your business expenses? It’s simple. When requesting reimbursement for things like travel costs, restaurant meals, and more, workers typically submit relevant receipts and supporting documentation.
Business owners can therefore keep their employees satisfied by keeping track of these costs and promptly and accurately reimbursing them quickly. If an employee has to keep asking for the money they are owed or, perhaps worse, the evidence for that money being owed is lost or not promptly entered into the system, they will feel as though they are not being treated well (which they are not) and therefore their productivity and satisfaction will fall, and they might even leave altogether. When this happens, your business might gain a bad reputation, plus it will cost you a lot of money to hire new team members to replace those you lost.
You Can Calculate Your Profitability
Making sound long-term financial decisions for your company requires you to have a thorough understanding of your revenue and expenses. Investors, grant-givers, and financiers are more likely to work with a company that is showing a profit. But let’s say you have no idea where your money is going or how much you’re spending. It will be much harder to determine where you are underspending, overpaying, or investing in the incorrect places, and to make the necessary adjustments to your spending habits as a result.
If you keep tabs on your company’s expenditures, you can easily calculate its profitability without having to dig through mountains of receipts, as well as ensure that you have the funds to weather a recession or other unexpected event.
It Makes Decision Making Easier
When you run a business, you’ll need to make a lot of decisions. These decisions will range from the minute – those you barely think about – to the huge – the ones that could spell disaster if you get it wrong.
Although there are a number of factors that must come together to help you make the right choices every time (or most of the time, at least), one thing that will help is understanding your business expenses. After all, the majority of business decisions will revolve around spending money in some capacity. Knowing what your budget is because you know what your expenses are is crucial in this regard; it means you’ll know just what you can buy and what you can’t.
If there is something you want, but your finances won’t allow for it, you’ll also be able to quickly see where you can make cuts and reduce expenses to allow for this new cost to be managed.
Final Thoughts
Keeping tabs on business expenditures should be a standard practice for your company. You’ll gain a lot by keeping track of your finances, no matter if you use a mobile app or cloud accounting software and an expenses spreadsheet. First, it will boost your cash flow, which is the foundation of any successful and sustainable small business. A company that keeps meticulous records has a much better chance of luring investors and being approved for small business loans.
Knowing the ins and outs of small business accounting is essential for keeping tabs on and controlling your company’s outlays. You’ll be better prepared for tax time, too, allowing you to pay the least amount of taxes legally possible without straying into tax oblivion.
