With the demands of running a business, who has the time or energy left for managing company expenses? Thankfully, there are tools and best practices that can streamline your expense tracking while providing valuable business insights.
Let’s dive into the world of business expense management. We’ll explore why it’s important, common expense categories to track, and how to leverage available technology and processes for simplified oversight. By the end, you’ll be ready to optimize your expense tracking.
As a business owner or manager, you wear many hats every day. Your responsibilities likely include overseeing operations, product development, personnel, budgets, and more. Somewhere in that long to-do list, expense tracking may get overlooked or feel like an administrative chore.
However, keeping close tabs on company spending should be a priority. Proper expense management is crucial for making informed financial choices, meeting tax obligations, and maximizing profits. It’s also valuable for auditing or providing expenditure reports should they be requested.
This is where technology-enabled solutions come in handy. The right tools can automate routine tasks, freeing up your time for more strategic work. They also give a bird’s-eye view into spending trends to help optimize your budgets over the long run.
In this article, we’ll cover:
- Common business expense types
- Benefits of effective expense management
- Techniques for tracking expenses
- Expense management software options
Let’s get started!
What Are Typical Business Expenses?
Before diving into best practices, it’s important to define the types of costs that typically fall under the umbrella of “business expenses.” These are the line items on which careful tracking helps control spending and maximize tax deductions.
Some common categories include:
- Office supplies (pens, paper products, filing equipment etc.)
- Staff salaries
- Rent/mortgage and utilities
- Insurance (general liability, professional liability, property & casualty)
- Legal and professional services fees
- Software/technology spending (subscriptions, licenses, equipment leases)
- Telecommunication costs (phones, internet plans)
- Travel (flight, lodging for meetings/conferences, vehicle mileage)
- Meals during business travel or entertainment
- Marketing (ads, sponsorships, giveaways, conference booths)
- Maintenance and repairs
- Equipment and inventory purchases
- Business registration, certification, and licensing fees
- Banking service charges and credit card processing fees
Essentially, any cost directly tied to running, expanding, or improving your business operations qualifies as a deductible expense. The trick is accurately logging each expense to take advantage of tax savings.
Why is expense management important?
Managing cash flow and controlling costs are crucial tasks for maintaining financial stability as a business owner. Failure to track spending accurately poses various risks:
- Inability to properly expense items come tax season
- Overlooking savings opportunities
- Exceeding your budget without realizing
- Difficulty assessing operational efficiency
- Missing out on tax deductions that lower your taxable income
- Potential IRS inquiries or audits resulting from sloppy record keeping
Mastering expense management sets you up for better long-term financial planning and decision making. It’s about more than tax breaks – it’s about financial oversight and sustainability.
Now that we understand the importance and types of business expenses, let’s explore techniques and tools to effectively track spending.
Techniques for Tracking Business Expenses
There are a few different ways you can go about expense tracking based on factors like resources, team size, and preference. Here are some common tracking techniques:
Traditional accounting ledger: An old-school paper ledger works if your needs are straightforward. List expenses, categorize, and total monthly. But paper is prone to errors and lacks digitization perks like real-time access anywhere.
Spreadsheets: Useful for basic tracking across tabs/sheets. Excel, Google Sheets allow formulas, calculations. However, spreadsheets aren’t optimized for accounting and don’t scale well as needs grow.
Accounting software: Dedicated programs like QuickBooks, Xero automate bookkeeping tasks and standard financial reporting. They integrate across teams and devices. Cloud versions provide 24/7 accessibility.
Expense management apps: Purpose-built apps like Expensify or Abacus streamline snapshots of receipts, mileage entries, expense submissions, manager approvals. Integrate with accounting software for a holistic approach.
CRM expense modules: Certain CRM players like Zoho have built-in modules that allow capturing and categorizing business spends alongside contacts details. Helpful for SMBs wanting an all-in-one system.
Some businesses keep manual ledgers or spreadsheets for simple tracking while implementing a more robust software solution as their needs become sophisticated over time. Choosing the right tool depends on factors like team size, budget, reporting needs, and future goals.
Often, a combination can work well too – for example, keeping granular transactional records in a spreadsheet while summarizing for accounting in desktop software. Iterating is encouraged until finding the right balance. Read on to see techniques that enhance expense tracking.
What tracking method works best for your business?
Share your view on the most effective expense management approaches for your industry. Let’s discuss.
Steps to Effective Expense Tracking
With the techniques available, here are steps you can take for continuous improvement:
- Establish clear policies
- Outline clear guidelines on what qualifies as a deductible business expense and what doesn’t. This should be tailored to your specific industry and business needs.
- Define expense categories, documentation requirements, approval hierarchies, and reimbursement procedures.
- Communicate the policies company-wide to ensure consistent adherence.
- Choose tracking tools
- Evaluate the costs, features, and capabilities of various expense tracking tools like ledgers, spreadsheets, or dedicated apps.
- Consider the complexity and scale of your operations to determine the right tool. For example, a small business may find spreadsheets sufficient, while larger enterprises may require robust expense management software.
- Assess integration capabilities with accounting systems, receipt scanning, and approval workflow management.
- Optimize data entry
- Streamline the expense submission process by automating wherever feasible to minimize manual data entry.
- Encourage employees to log expenses promptly and accurately by making the process convenient, such as through mobile apps or receipt scanning.
- Prioritize ease of use and accuracy to increase compliance and reduce errors.
- Implement approval workflows
- Build approval chains and hierarchies suited to your team structures and expense policies.
- Configure rules for automatic routing of expenses to the appropriate approvers based on factors like amount, category, or department.
- Enforce expense policies consistently through the approval process to maintain control and compliance.
- Aggregate & analyze
- Regularly track and analyze key expense metrics and KPIs, such as spending by category, department, or employee.
- Categorize expenses systematically to identify areas for potential cost savings or policy adjustments.
- Use data visualization tools to surface insights and patterns that may not be immediately apparent.
- Refine processes
- Reassess your expense tracking processes regularly, soliciting feedback from employees and stakeholders.
- Adjust tools, policies, or workflows as your business needs evolve over time to maintain efficiency and effectiveness.
- Continuously seek opportunities for process improvement and automation to streamline expense management.
- Ensure accessibility
- Provide secure remote access to expense data and tools for employees who travel or work remotely.
- Ensure expenses can be easily accessed, reviewed, and approved from anywhere, on any device.
- Maintain proper access controls and audit trails for security and compliance.
Proper expense tracking is integral for informed decision-making, audit preparedness, maximizing tax deductions, and sustaining financial oversight over time. Does your current system empower these necessities? Continuous feedback and refinement are key for ongoing process enhancement.
Examples of Omnichannel Retail Execution
While the core concepts apply similarly across industries, omnichannel strategies manifest uniquely depending on specific business models. A few examples:
IKEA
The furniture giant utilizes their seamless physical/digital integration to empower customers with informative product experiences on any channel. Customers can explore, configure and start buying instantly in-store after online research or vice-versa.
Nordstrom
The retailer deploys a unified loyalty program rewarding customers for repeat engagement across channels. Members earn points redeemable for account credits regardless whether in-person, online or via mobile.
Patagonia
The athletics brand leverages social platform content about outdoor culture to drive discovery and trials of new clothing categories. Social then guides customers to in-store experiences and web carts for seamless purchasing.
Chanel
Luxury perfume brand deploys ‘virtual shopping’ AR try-ons through Instagram and dedicated mobile app. Users can digitally sample scents, learn about ingredients and share looks before in-store consultations or online checkouts.
Tracking and assessing KPIs from top brands exemplifies how a connected experience across channels augments discovery, builds trust and sets the stage for commitment.
Tools like market research, surveys, heuristics and trendspotting help uncover customer needs for discovery. Omnichannel boosts CX, sales and loyalty. Expense tracking saves costs, aids decisions and ensures policy compliance. Personalization leverages data for experiences tailored to customers. Benchmarking illuminates successful omnichannel tactics.