Amidst the hustle of running a small or medium business, a boring task like expense tracking is often easy to ignore. That is until the tax season arrives.
The tax season is when most business owners realize the importance of tracking business expenses, no matter how monotonous a task it may be. A common sight to witness is an utter commotion when it comes to the expense reporting process. On one side, you have employees running around to gather, manually update and report business expenses. On the other hand, you have finance folks hurriedly validating and approving expenses.
Tight deadlines, loose policies, and tasking your workforce to enter or validate data manually can cost you. It can cost you a decline in your financial and employee productivity. And this can severely affect your bottom line.
To help ease your expense reporting woes, this article will take you through everything you need to know to seamlessly track business expenses. Let’s dive in!
4 reasons why business owners should prioritize tracking business expenses
Tracking expenses regularly gives you insight into the most up-to-date financial data. Using this, you can analyze your company’s success, identify weaknesses, and plan strategically.
- You don’t have to be buried in a pile of paper receipts.
- You don’t miss any tax deductibles.
- You don’t get into trouble with tax authorities.
- You can stay on top of spends and grow your business.
We’re not going to lie; expense tracking is really as boring and time-consuming as it sounds. But we aim to simplify it for you by:
- Minimizing the time you spend on this task.
- Maximizing the value you derive from it.
Ways to track business expenses and income
As a small business owner, you might not love the billable hours you and your employees spend on keeping accurate records of spends. You have bigger fish to fry, right?
Thus, we’ve curated a list of effective tips that might help make business finances easier to track:
Open a business bank account
Using the same bank account for business and personal expenses might be working just fine for you, but it might not be the best move for your business. What happens when you can’t remember if you spent those $36 on a business lunch or on a leisure brunch with your friend?
Having a business bank account helps separate your business expenses from personal expenses. It also ensures you will not run into trouble with the IRS for fraudulent or misrepresented expenses.
Here are some other benefits of opening a business bank account:
- Limited liability: Business accounts come with limited personal liability as your business and personal funds are kept separate.
- Security: Merchant services generally offer purchase protection to ensure your customer’s details are secure.
- Professionalism: Customers can pay with credit cards or make out cheques to your business instead of your personal account.
- Work delegation: You can safely have your employees handle day-to-day banking activities on your behalf.
- Line of credit: Business banking offers a line of credit that can be used in the event of an emergency or to make important business purchases.
- Increased purchasing power: Business accounts help establish a credible credit history enabling you to make larger purchases for your business.
Once you’ve segregated your personal and business expenses, understanding spends v/s income is a no-brainer. And thus, with just one simple step, you have almost nailed your first step in the process!
Track your receipts regularly
Here are a few reasons why tracking receipts is of grave importance:
- They are needed as evidence for business purchases if you ever get audited.
- They help better manage cash flow, which is very crucial for businesses.
- They ensure business expenses don’t outstrip your income.
Whether you keep your receipts neatly organized in a file or dump them in your car’s dashboard, you must keep them safe. Although your accountant would be grateful if you had a better system in place.
An upgrade from the car dashboard would be an excel spreadsheet (all businesses love spreadsheets.) But this means, manual data entry, and guess who doesn’t love it? Yes, your accountant. (Your employees don’t like it either.)
Migrating to an Expense Management Software can prove to be an investment that’ll pay for itself. It helps streamline the expense reporting process, saves time and effort, decreases chances for errors, and increases financial productivity. In other words, you’ll always experience seamless expense reporting and increased overall productivity!
Maintain records of business travel spends
If your business requires your employees to stay on the road often, you must have a travel policy in place. The next step is to make sure your employees are aware of how they can keep track of their expenses on business trips.
According to a recent survey, business travel expense fraud is estimated to cost US organizations a whopping $1.9 billion per year. In addition to burning a hole in your pocket, inefficient travel request workflows and delayed reimbursements take a serious toll on employee experience. Employee dissatisfaction = Non-performance. No business can afford this.
Future-proofing your travel expense management is undoubtedly critical. And by future-proofing, we mean finding a solution that covers all futuristic prerequisites like travel approval workflow, trips, audit trails, automatic credit card reconciliation, analytics, and more.
Design a robust expense reporting template
There are hundreds of expense report templates available for free on the internet. But should you use these generic templates without any customization? We think not.
Why should businesses consider customizing their expense report form:
- Seamless streamlining of internal and external processes.
- Effective tracking and matching of expenses to specific employees, categories & merchants.
- Leverage insights into spending habits, preferred vendors, frequent policy violators, etc.
- Ensure your employees are not missing out on filling any important information.
- Increase financial productivity with advanced analytics.
Customizing your expense report form can help add a sense of objectivity while gauging and streamlining your expense management.
Must-have fields in an expense report form:
- Name of the employee/ employee ID: Helps map a particular expense report form to a specific employee.
- Date of spend: Helps detect spends made on weekends or holidays. This also builds an additional layer of security.
- Purpose of spend: Helps finance teams keep track of business finances.
- Type of spending: Typically, an expense report form consists of generic company spends such as food, entertainment, accommodation, and travel. This information helps businesses gain insight into category-wise business expenses.
- Payment mode: Here, the employee can state whether they used their card, a travel advance, corporate credit card, or any other payment mode. This helps map receipts to payment modes.
- Department: This can help approvers or managers get a better picture of department-wise spends. This category can also help businesses understand the expenses incurred by a specific department for a specific business purpose.
- Details of the manager/ approver: Adding these details can help directly forward an expense report form to a particular approver(s). This decreases the turnaround time for approvals.
- Comments: This field helps your employees add justifications for a particular expense or policy violation. This helps avoid multiple back and forths.
Some nice-to-have fields on an expense report form:
- Merchant details: Helps finance teams track frequently associated vendors. They can then leverage these numbers for the best of deals and discounts for traveling employees.
- Project specifics: Helps compile all the spending a particular employee has incurred for a specific project or business trip. It also helps finance teams understand employee spending patterns, frequent policy violations, and more. Using these insights, businesses can tweak their travel and expense policies to suit their business objectives better.
- Category specifics: Your employees may come under different spending allowances based on hierarchy or department. Adding this category can help look for policy violations based on these employee spending brackets.
- Client name: This field can help associate and stitch the expenses that an employee spends based on every client they have. These numbers can help finance teams understand how much money they are spending on particular clients.
- All said and done; it would take a mountain load of patience and time for finance teams to manually supervise such detailed forms. An automated expense management software can be a real boon here.
Adopt an Automated Expense Management Solution to track your expenses
Your business deserves to optimize its profit margins at every opportunity. Automating Expense Management can help you achieve this more efficiently and conveniently. Recognize, though, that not all solution providers are profitable. You must do your research ahead of time.
Know the background of a potential expense management solution provider. Do they have a history of unethical or illegal practices, for example? A quick Google search should be able to inform you of both that and of any potential online reviews.
There are a lot of ins and outs to navigate when it comes to proper expense management. Doing so can help you stay ahead of market competitors. That's why it can be in your best interest to work with trusted experts on the matter. Also, it's worthwhile to keep yourself well-informed of industry trends to continue to stay relevant.
It would also help if you worked with an expense management system provider you can trust. Take the time to cultivate that relationship so you can look forward to long-term solutions for your business's profits.
This is where we come into play.
Fyle helps you do more than just automate and streamline your business expenses.
We prioritize providing clients like you the most reliable automated expense reporting software in the market. Our goal is to help your business save time and money.