As a small business owner, you are probably shouldering most of the responsibility for your business. One of the most important parts of your business is the finances, and having a good grip on your expenses could mean the difference between business failure and success.
In order to manage your business expenses, you first need to review and measure them. This means that you have to find effective ways to track your expenses and find areas where you can reduce them.
In order to do this, you will need to utilize the following ways to manage your business expenses.
Use software to track expenses
Before anything else, you need to be aware of exactly where your business money is going. You may be able to get by (if your business is small enough) to look back on your bank account regularly.
However, this is neither efficient nor professional, and soon you will spend a lot of time, something which business owners generally don’t have a lot of.
There is a lot of amazing software options to help you track expenses. They can range from complete, enterprise-sized accounting software with expense tracking options, or lighter, subscription-based invoicing services made for small businesses and freelancers.
Whatever you choose, you should find effective ways to automate your expense tracking.
Separate your business and personal finances
This may seem particularly logical, but it is one major mistake that many small business owners constantly make.
Do not use your personal money (cash, card or PayPal) for any business related purchases. Similarly, do not use your business finances to fund your personal needs. Those things should be strictly separated.
The reasons are two-fold:
- You won’t be able to accurately track exactly how much money you are spending on any particular part of your business, as you won’t have separate receipts. This is horrible for budgeting purposes and can get confusing in general.
- You will have a difficult time when preparing your taxes, as you won’t be able to accurately report your profits (which is equal to revenues minus expenses), as you don’t track your expenses accurately. This could get you in a lot of trouble with the IRS or your country’s tax institution.
Save your receipts
There are many reasons why you should be vigilant in storing your business receipts.
While overall it is important for expense tracking, you also need to have your business receipts on hand in case the IRS or tax institution ever decides to audit you.
This is by no means any fun for anyone, but it can be a lot less painful if you have the proper documentation.
When you save your receipts, you should make sure to note down exactly what the purpose of the purchase was. These reasons typically include:
- Business travel (taxis, Uber, etc.)
- Entertainment (including food)
- Office equipment and supplies
- Association fees
- Charitable contributions
To save yourself time and space, you can use the upload function on your invoicing or accounting software. Most software will allow you to take a picture or scan of your receipt so that you don’t have to keep it in a shoebox.
Use financial statements and reports
By using your accounting or invoicing software, you can create weekly and monthly financial reports to check up on your expenses and revenues. With this information, you can create monthly, quarterly and annual budgets based on your past expenditures.
However, you should also get familiar with the most important financial documents. These are:
- Cash flow statement—this document helps you to measure both your investments and your financing and operating activities. It shows you how much cash is flowing into and out of your business for any specified time period.
- Profit and loss statement—also known as an income statement, this important document helps you to review all your business income and expenses quickly.
- Balance sheet—this document provides you with a pretty accurate snapshot of your business at any given time. It provides you with details on your assets, liabilities and shareholders’ equity.
Although it may seem as judgment, procrastination is actually a regular problem with many business owners.
When you have an expense, you need to record it as soon as possible so you don’t have a whole heap of receipts on your desk.
Similarly, you should be quite quick when it comes time to send out your invoices. If you do not send out your invoices on time, you can end up getting small or large delays in the payment of these invoices, meaning decreased cash flow for you at the end of the month.
If you send out your invoices late, you could miss the payment cycle that most businesses have, meaning you will have to wait an extra 30 days or longer to get your payment.
With online invoicing and accounting software, this is particularly easy to do, as most of the information is already saved online. Another option is to use invoicing templates which can take much longer.
Cut back on expenses where possible
One of the best ways to cut back on expenses is to see which expenses are more flexible than others.
For example, while coffee seems to be an absolute necessity at work, it does not have to be a particularly expensive brand of coffee. Similarly, your office equipment may be slightly old, but they run fine and don’t absolutely need to be replaced at the moment.
Furthermore, you can cut expenses by requesting discounts on services or products you already use. You would be surprised by the amount of businesses willing to give discounts to their loyal clients.
However, you must first ask. With good negotiations, you may be able to work out a deal that benefits both sides.
These are some of the best ways you can go about managing your expenses. With the proper techniques in place, you’ll see better expense reductions and overall increases in your cash flow and revenue.
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