How to Track your Business Expenses in 4 easy steps.
First things first, why is it important to track your business expenses and income?
How do you know that your business is successful if you do not know how much you spend and earn? How do you know if you could get supplies for less money if you do not know how much you spend on supplies in the first place?
Keeping track of your business expenses and sales or any income that you make in your business is the most important part of operating a successful business. I know that it is not the most fun part, but it is the most important part. The government feels that it is very important as well, so you know how much to pay in taxes every quarter or at the end of the year.
Here are the 4 Easy Steps:
Open a dedicated checking account.
Save all your receipts.
Get cloud-based accounting software.
Hire a professional.
1. Open a dedicated checking account.
This should be the first step that you take when you decide to open a business. Use only this checking account to pay all your expenses receive all your income. This will keep everything in order even if you do not use an accounting software or hire bookkeeper immediately. If you pay for all your expenses with this account and receive all your income in this account, you will know about where you stand in your business. I do not recommend doing this forever, but I do recommend doing it in the very beginning. I totally understand that sometimes when you start a new business you don’t know if it’s going to be profitable or not so you don’t want to take all the steps if you don’t have to. I also know how important it is to keep all your expenses and income in one place so if you only do one thing at least open a dedicated checking account.
2. Save all your receipts.
At the end of the year when you file taxes, you are going to enter the amount of your expenses and the amount of your income. The difference between your income and expenses is going to be what you are taxed on. The IRS says that you should keep these on file for at least seven years. So, every single time you make a purchase for your business make sure that you save the receipt. Get a file folder and organize your receipts for the type of receipts that they are. So if you buy supplies from Michael’s you’re going to put that under a supply category. If you have a business where you use a vehicle and you purchase gas for the vehicle put that receipt in the fuel file. Try to keep them as organized as possible. If you purchase everything online and they email you an invoice make sure that you make a folder in your email account and save the invoice or save the invoice directly to your computer in a folder that you have dedicated for receipts and try to them label them properly. Once you get going and get an accounting software you can upload your receipts directly to the program and it will file them with the transaction in the cloud.
3. Get cloud-based accounting software.
I highly recommend doing this almost immediately. Paying monthly for a cloud accounting software such as QuickBooks online or Zero is the second-best thing that you can do for your business. It is the easiest way to automate the parts of your business that you do not like doing such as bookkeeping. Cloud accounting software connects to your bank accounts and credit cards and automatically pulls the transactions into what they call a Bank feed. Then all you have to do is in categorize the transactions properly. Most of the software companies also offer a receipt capture function and a mobile app. So if you have a hard time staying organized you can take a picture of the receipt the minute that you leave the store and the software will attach it to the transaction in your cloud accounting software. This way you do not have to hold on to file folders or shoeboxes or take up space on your computer saving receipts everything is right inside of your accounting program. This will also save you money at the end of the year when it is time to file taxes and you send your information to your CPA. CPAs charge a pretty penny to unravel your books and get the information that they need to file your taxes for you. So if you set up an accounting software at the very beginning you’ll never be the one spending a week of your time trying to get all of your stuff together and remember where you bought everything from and digging through your email account for your receipts just hoping to get some correct numbers. Everything will be already running inside of your accounting software and it will be easy.
4. Hire a professional!
Hiring a professional bookkeeper is the first thing that I would do when it comes time to start outsourcing parts of your business. A professional will know exactly how to categorize your transactions so you get the least amount of tax liability. It allows you to focus on your business and not on the tedious side tasks that you don’t enjoy and probably avoid and then you end up in a big mess at the end of the year and have to take time away from your business to get it all organized so that you can file your taxes. This is a shameless plug, but I can tell you from experience of being a creative business owner as well as being a virtual professional bookkeeper, is the messes that I have cleaned up. This is a judgment free zone however the messier your books are the more it will cost you later to have them cleaned up and properly kept. Therefore, I highly recommend that a bookkeeper is the first person you hire to keep your business organized and your finances in order and keep your mind at ease.