Accurately tracking your business expenses is key for success, but it can seem intimidating to keep track of so much at once. Luckily, following these five tips can help you manage this daunting task.
How to Keep Track of Business Expenses
Keep Business Expenses Separate
The best way to track expenses for any business is to keep your business expenses separate from your personal. When starting your business, it’s a good idea to go to the bank and open a separate checking/savings accounts for business-only purposes. This makes keeping track of business costs simple, as it naturally separates these expenses from your personal purchases. And don’t forget to save all your receipts for accounting purposes. It’s easy to forget what you bought at the store, especially if it was a while ago.
Use the Right Record-Keeping System
Like a valued office manager, your record-keeping system should have good work habits. It should be easy to use. If it's too complicated, it might be neglected, defeating its purpose. Your business expense tracking system should reflect information accurately, completely and consistently throughout all of its applications, and it should do so in a timely fashion; you don't want to base important business decisions on partial or outdated information. Finally, it should present results in an easily understandable manner. If you can't comprehend the data that your record-keeping system provides, you might ignore its implications.
Get Help with Accounting
You can decide whether it makes sense to keep your own books or hire someone to do it for you based on how much time and ability you have for the task. You can hire a company that specializes in payroll services to handle the paperwork and withholdings for your employees. Whether you do the day-to-day or hire an outside firm, most small-business advisors suggest that you have an accountant prepare your tax returns and year-end statements. In many cases, an accountant can also offer advice on various aspects of financial management, such as cash flow analysis, borrowing for the business, tax considerations and suggestions for which software to buy for record keeping. Whichever way you go, you should stay involved in the record-keeping process.
Track Tax-Deductible Expenses
One of the most important functions of business records is to prepare you (or your accountant) for filing tax returns for the business. Thus, you may want to set up a record-keeping system that captures information in a way that matches the demands of the IRS. If you are a sole proprietor, you'll want to familiarize yourself with the requirements for completing Form 1040, Schedule C.
Common small business tax deduction items include:
- Home office expenses
- Equipment and materials
Review Financial Reports
Like a medical diagnostic tool, your records help you assess the health of your business. Statements of income, or profit and loss statements, help pinpoint unprofitable areas, products or services, alerting you to make changes or eliminations if necessary. The balance sheet captures the condition of your business at a given moment in time, allowing you to measure its reality against either your own budget projections or similar businesses.
There are plenty of tools out there to help track expenses for your small business. The above tips can be applied at any time and can quickly become a good habit to follow.
Building a business takes hard work, money and time. Make sure your business is covered by speaking with your Farm Bureau agent today or check out our coverage options. Whether you’re a home-based business or a commercial business, we have what you need!