Tips for Tracking Expenses for your Small Business

Are you considering creating an office expense tracking system for your small business but don't know where to start? You're in luck because we've got you covered. Here are some excellent tips for tracking and analyzing your business' expenses so you can effectively plan and manage your finances in the future.

Create a System For Recording Expenses

The first step to taking control of your finances is to develop a systematic approach for tracking your expenses. Without a clear record of what you spend and where you spend it, you're bound to make mistakes that will harm your business. The best way to avoid this is by setting up automated expense tracking via online budgeting software like Xero or Wave. These tools provide you with all the necessary functionality you need to keep track of your income and expenses, and provide you with a clear snapshot of your financial situation at all times. Doing this regularly is the key to success. It will help you identify any expenses that are unnecessary and/or unreasonable, which you can then change or eliminate.

Use Expense Categories Effectively

When recording your business' expenses, it's important to keep in mind the categories you'll use when summarizing and analyzing your expenses. This will help you determine whether or not certain expenses are truly important from a financial point of view, and it will allow you to accurately assess your expenses. For example, if you're spending a lot of money on office supplies, but you also use business cards a lot, you might decide that this is an area you want to cut back on since they aren't necessary from a financial point of view. It's always best to be consistent within yourself, and use the same categories throughout the year whenever possible. This will make it much easier to compare expenses from one year to the next, so you can easily spot any trends.

Use Sub-Categories To Your Advantage

Sometimes, expenses can be placed into more than one category. It's important to remember that these categories are simply there to help you keep track of your expenses more easily. You can use your best judgment when deciding which category to use for each expense, and in many cases it will be simpler to use more than one. For example, you might decide that the category Marketing and Advertising should be used for all expenses relating to marketing and advertising, whether that's online marketing, social media marketing, radio ads, or TV ads. Having all these expenses in one place makes it much easier to track how much you're spending on each area, and to see how much you're actually getting back in terms of results.

Use Different Types Of Analysis To Determine Expense Behavior

Once you've collected all your expenses for a given period, it's time to start analyzing them. The best way to determine whether or not an expense is necessary is by comparing it to a similar expense you had in the past (or in the same category, if this is the first year you've kept track of your expenses). By analyzing your past expenses, you can determine the trend which exists with respect to this particular category. For example, if travel expenses for one of your employees have increased significantly in the last six months, but they were previously stable or low, it might be time to re-evaluate the role this employee plays in your business. Could they be handling more of the administrative tasks and hence necessitating the need for more travel? Or is there another reason they've begun traveling so frequently?

Keep A Journal Of Your Expenses

It's always a good idea to keep a ledger of your expenses, whether this is via an online tool like Xero, Quickbooks, or a paper journal. The advantage of this method is that it forces you to keep track of all your expenses, which in turn makes it much easier to analyze them later on. You can also decide what categories you'll use for each entry, so it won't be difficult to keep track of what's going on. A paper journal is especially helpful if you're looking to keep track of a larger number of entries, as you won't have to worry about forgetting to input a new expense entry every month.

Keep Track Of Your Expenses Thru Advertising

Sometimes, it's not possible to directly track an expense back to its' corresponding category. This is where advertising comes in. Using advertising to your advantage will not only allow you to keep track of your expenses, but it will also provide you with valuable information regarding what is and isn't working with respect to marketing and advertising. For example, if you've set a specific target for your online marketing endeavors and you begin to see positive results, but all of a sudden, your TV ads stop getting good returns, it might be time to re-evaluate the utility of TV ads in general. Directing your efforts towards online marketing will prove more effective in the long run.

When it comes to tracking expenses for your small business, there are several key pieces of advice to follow. By taking the time to implement these tips, you'll be able to better manage your finances and effectively plan for the future.