Financing your business is not just one aspect you should consider when making business decisions. It’s also important to manage your business expenses effectively and efficiently. But, how do you carry out this task to ensure that you’ll have sounder business decisions later on?
In this post, you’ll learn the good reasons why proper management of business expenses is essential to proper business decision making. Also, you’ll learn helpful ways to rack your expenses to grow and make your business more successful.
Track Where Your Money Is Going.
Tracking expenses is a key task when it comes to managing your money. If your business is gaining good profits, it doesn’t mean that you can be lax with your tracking methods. By tracking your expenses, you have a clear idea where your money is being spent, like on raw materials, production, or marketing.
There are many ways you can track your expenses, such as using an accounting software program or hiring accounting and finance professionals to check, balance, and analyze your financial status. Whatever method you choose, it’s important to pick the right tracking method that is suitable for your business.
Here’s how tracking your expenses can help you make better business decisions:
Identify Source or Major Expenditures: By tracking your expenses, you’ll know the areas of your business that you’re mostly spending the most. By doing so, you’ll be able to assess if these areas are supposed to be prioritized or not. In that way, you can set your business priorities to ensure they align with your business goals.
Proper Budget Allocation: Budgeting is a critical part of any business, whether it’s a small business or a corporation. Tracking your expenses will give you an idea of the things you mostly spend money on. In that way, you’ll have a good basis when creating a budget for next year.
Separate Business From Personal Expenses.
Most often than not, novice business owners tend to mix personal and business expenses. Creating an expense record is important. By doing so, you can evaluate both personal and business expenses and separate them as much as possible. Even a dollar can ruin your account balancing. That’s why if you want to make sounder business decisions, you have to ensure that you enforce strict business.
If you or a family member needs money to spend on an important matter, like a school project or to pay the utility bills at home, you have to take account of all of these expenses. You probably have heard business owners borrowing their own money in the bank and returning it afterward. Or you probably read stories about business owners paying out of their pocket when getting goods from their own stores. These scenarios may sound silly, but they are great ways to manage your expenses and your business as a whole.
Here are some tips when creating an expense record:
Expense Documentation: Document all expenses, including the type or description, the person who spent the money, time and date, and the actual amount.
Obtain Receipts: Get receipts for all expenses regardless of the amount and purpose. Tracking all spending sources will avoid guesswork as to where some of your money went when you’re doing accounting or year-end financial reports.
Create Backup Record: Keep a paper and digital record of all expenses. By doing so, you have a backup if ever one got lost, damaged, or accidentally shredded.
Manage Business Expenses for Tax Compliance.
What many small business owners don’t realize is that there are a lot of things that can be deducted when tallying up the numbers for business taxes. That’s when tracking your expenses come to play. Keeping all receipts and documenting all your expenses will help you comply with tax laws and even reduce the amount you need to pay for your business taxes.
By determining your different business expenses, you’ll be able to include plenty of deductions in your yearly tax. It means that you’ll have more savings you can use to run your business. Most importantly, you’re able to comply with tax laws and avoid facing any legalities.
Here are the most common tax deductions for small businesses:
Rent: It includes rental costs for an office, storefront, boutique, or factory.
Vehicle Expenses: Whether you rent or use your own car, van, or light truck for your small business, you can deduct the cost in maintaining and using these vehicles as long as you can prove it. One sure way to do it is keeping records of costs, such as oil changes and gasoline receipts.
Salaries and Wages: Aside from the regular pay, this deductible also include commissions, bonuses, contract labor costs, and taxable fringe benefits.
Insurance: It includes the costs of malpractice coverage, cyber liability coverage, flood insurance, and business continuation insurance.
Supplies: It includes the costs of cleaning supplies, equipment, and services. Also, you can include costs for repairs and part replacement for equipment and appliance you use in your business.
Taxes: Regulatory fees, licenses, and taxes on personal property or real estate can be deducted, as well as employer taxes and employer share of FUTA, FICA, and state unemployment taxes.
Create a Better Marketing Plan.
Marketing is a vital activity for any business. Of course, you always need to set the right budget for all your marketing efforts, regardless if it is a digital marketing strategy or a traditional marketing method.
By keeping track of all your expenses, you’ll be able to determine how much money you can spend on a specific marketing campaign. In that way, you can create more realistic goals and implement the applicable marketing strategies without delay or disruption for the growth in sales of your business.
Business decision-making is not easy. You have to consider a lot of things, most especially the financial aspects. Effectively managing your business expenses can help you make wiser business decisions because you know where your money is going by tracking your expenses, which helps in budgeting and creating a solid business plan.
You’ll be able to account for every detail of each expense and set your priorities. Managing your business’ expenses allows you to create effective, actionable steps, such as your next marketing strategies for your business. Also, tracking your expenses can help you comply with tax laws and separate your personal and business expenses.