Businesses, both big and small, incur expenses. These can range from rent and salaries to software subscriptions. Staying on top of expenditure is the key to your business’s financial stability and success.
However, tracking expenses can seem daunting, especially to small entrepreneurs who often juggle multiple roles within their business. But really, it’s not that hard with the right business expense tracker.
In this article, we’ll break down the concept of expense tracking. You’ll learn what an expense tracker is, how it works, what it tracks, and why it’s important. We’ll also share helpful tips for small business expense tracking.
Let’s jump in.
What Is a Small Business Expense Tracker?
An expense tracker is a digital tool for logging, organizing, analyzing, and reporting business expenses. It allows you to record and manage your expenses, track spending, and monitor the business’s financial health.
Think of an expense tracker as a digital accountant. It captures and records expenses for you and gives you real-time visibility into business spending. Some even have automatic expense tracking, analytics, and other convenience features.
For example, Invoice Simple has a built-in expense tracker that lets you scan paper receipts with your smartphone to capture an expense. You don’t have to enter the receipt details yourself; the app does all that automatically.
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8 Reasons to Add an Expense Tracker to Your Business
Do you really need an expense tracker in your small business?
You absolutely do.
In this section, we’ll explain why your business needs a digital expense tracker. Let’s discuss eight reasons for using an expense tracker over traditional expense reporting.
1. Save Time
You can, of course, track expenses on something like a spreadsheet or physical ledger. But that’s a lot of tedious, time-consuming manual work.
A digital expense tracker is purpose-built to streamline expense monitoring. No more cumbersome paperwork. Everything from expense capture to reporting can be done with just a few button clicks.
Digitizing expense tracking saves you valuable time and effort. Expense entries and calculations that would normally take long hours can be dealt with in mere minutes.
2. Simplify Bookkeeping
Managing small business expenses is a big part of bookkeeping. An expense tracker automates expense management, taking a heavy load off bookkeeping processes.
An expense tracker produces clean, well-organized expense figures. You can then export these numbers to your accounting systems. Some expense trackers have built-in support and integrations with popular accounting tools.
3. Stick with the Budget
Using an expense tracker can help you stick to your budget. Whenever you draft a budget, you set targets for how much money you intend to spend. An expense tracker shows you how much you’re really spending versus what you had planned.
You can review your expenses and make real-time decisions to cut back in areas where you’re overspending.
4. Improve Cash Flow Management
Sadly, nearly half of all startups fail within their first five years in business. And the number one reason for small business failure is cash flow problems. If you lose grip of the cash flow, you lose grip of the entire business.
Small business expense tracking gives you a clear view of the money flowing out of your business. You’ll then decide whether your spending matches your revenue.
5. File Accurate Tax Returns
Well-organized expense reports make it easier to plan and file for taxes. Expense tracking ensures you don’t miss out on tax deductions and credits.
An expense tracker helps your business remain tax compliant while saving you money with tax benefits.
6. Gain Financial Clarity
An expense tracker opens your eyes to how your business spends money.
It can reveal actionable insights into your business expenditure. For example, you might find that some of your expenses are overpriced, redundant, or unnecessary, like a subscription you forgot to cancel.
Plus, visibility into your historical and current spending can help you forecast future expenses. That means you won’t get financial surprises down the road.
7. Prevent Fraud
Keeping a close eye on your outgoings can help you catch and stop fraudulent transactions. For instance, you might spot unauthorized charges on your card, stemming from an honest mistake or something more serious.
8. Avoid Accounting Errors
You don’t want errors in your financial books. Yet it’s surprisingly easy to make costly blunders when crunching the numbers manually. For example, you could mistake a decimal point for a comma, turning $10.000 into $10,000.
Even expert accounts sometimes make such errors. A recent survey found that 59% of accountants make several errors every month, mostly due to excessive manual workloads.
Expense trackers reduce human inputs and calculations in bookkeeping. They also have some error detection capabilities. So, it’s doubtful that you’ll ever find omission, data entry, duplication, or arithmetic errors in your expense reports.
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Types of Expenses You Should Track
Your business probably has a long list of expenses. You should track each and every expense in these categories:
Fixed Expenses
These expenses remain relatively constant on a monthly, quarterly, or yearly basis. Fixed costs include rent, insurance premiums, equipment leases, etc.
Variable Expenses
Variable expenses change from time to time depending on business operations or other external factors. They include costs like professional fees, training costs, shipping costs, and sales commissions.
Operating Expenses
The costs your business incurs to keep its day-to-day operations running fall under this category. Your operating costs may include office supplies, marketing, repair and maintenance, advertising, utilities, fuel, meals, etc.
Direct Costs
Direct expenses are linked directly to the production of goods or services. They include the cost of raw materials, transportation, subcontractor payments, and payroll.
Capital Expenses
These are long-term investments like real estate, machinery, or vehicle purchases.
Depreciation Expenses
Long-term assets such as buildings, tools, and machinery lose value over time. This depreciation is a quantifiable business expense.
Miscellaneous Expenses
Some expenses do not fall into any specific category. One-off costs, tips, and petty cash payments are all examples of miscellaneous expenses.
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How to Choose the Right Expense Tracker for Your Business
There are numerous digital expense trackers out there, each unique in its own way. The question is, which is the best expense tracker for your business?
What do you even look for in an expense tracker? Well, we’ve compiled a list of must-have features and capabilities in a small business expense tracker.
Choose a solution that meets these five criteria:
Easy to Use
Is the software easy to implement, run, and use?
You want an expense tracker with a user-friendly design and intuitive workflows. It should also be convenient to run, ideally accessible from anywhere via a mobile app or web browser.
Easy usability and accessibility mean you don’t need any special devices or training to use the expense tracker.
Seamless Integration with Other Financial Systems
An expense tracker alone is not enough to manage all your business finances. You may also need separate accounting, billing, invoicing, and banking tools. You may already be using some of these.
Make sure the expense tracker works in tandem with other financial applications, such as Invoice Simple’s integrated invoicing, reporting, and expense tracking capabilities. An integrated system ensures you work with the same data across all financial touchpoints.
Paperless Expense Tracking
Go for a solution that completely moves you away from paper-based expense tracking.
It’s not that there’s anything wrong with paper. But why keep paper receipts, invoices, and account statements when you can have them in digital formats?
Paperless expense tracking declutters your workspace and simplifies finding records in the future.
Reasonably Priced
The best expense trackers are premium software applications paid for via monthly or annual subscriptions.
The price generally depends on what the software can do and who you buy it from. But you don’t need an exorbitantly expensive app to track expenses in a small business.
Unlimited Scalability
Another factor to consider is how much expense tracking you can do with the system. For example, is there a limit to the number of expenses you can enter in a day?
The upper limit will, of course, depend on your business. But you want a tracker that can handle all your current expenses, plus future expenditures as your business grows.
Setting Up Your Expense Tracker: Step-by-Step
Once you have your expense tracker, it’s time to put it to work. Follow these steps to quickly set up your small business expense tracker and start reaping its benefits:
1. Install the Expense Tracker
Install your preferred expense tracker and fire it up. Depending on the tracker, this may involve downloading a smartphone or computer app, signing up with your user information, and configuring security details.
2. Create Expense Categories
List all your business expenses and organize them into their respective categories. Doing so will make it easier to enter the actual costs and monitor the various expenses.
3. Link Your Bank Account or Credit Card
Connect the tracker to your business bank account or corporate card (the one you use to pay for everything business-related). This link will grant the expense tracker access to outgoing transactional information. That way, it can automatically log expenses paid through the bank.
While at it, link the expense tracker to other financial systems too. Allow the system to share expenditure data with your accounting and invoicing software.
4. Start Recording Expenses as They Happen
The system probably won’t capture all your business expenses automatically.
Some expenses, such as those paid in cash, you’ll have to enter yourself. Record every transaction, with the correct details, as soon as any money is paid out.
5. Review Your Expenses
Make a habit of reviewing your expenses regularly. Do it on a consistent schedule, maybe weekly, bi-weekly, or monthly.
The expense tracker will help you visualize and follow business spending via graphs and tables.
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Key Takeaways for Small Business Expense Tracker
- Review your manual expense tracking techniques. See how calculating business expenses on paper and spreadsheets limits your view of business spending.
- Choose a suitable expense tracker from a reputable software vendor.
- Set up the expense tracker and integrate it with your bank and other bookkeeping solutions.
- Feed your expense tracker with accurate and relevant expense information.
- Check your expense reports regularly to keep a pulse on your business spending, cash flow, and general financial health.
