Tracking, recording and analyzing expenses is a basic component of financial management and when done properly, it can dramatically increase the chance of a business avoiding such financial issues. In our previous article we talked that no matter the size of your business you need to keep proper records monitoring all the business’s income and expense transactions and this should be done on a daily basis.
In tracking expenses small businesses can plan better, be able to anticipate slowdowns in cash flow and make sure the most important business expenses are always met such as stock purchase, rent payroll.
Depending on the revenue generated by the business they can be able to invest in a variety of complex systems able to automate their financial management processes. When it comes to small businesses operating on tight budget or don’t have expertise in the complex accounting systems there are simple systems that can be used where data recorded into the system and the processes around it are dependable and easily understood even with minimum financial expertise.
The next question being what is the best way to track expenses:
1. Digitize your receipts
Take photos of your receipts or screenshots of the generated texts after paying for a service. Double-check the images are clear and capture the entire receipt.
Store these files in your expense tracking app, or capture them typing manually in an excel sheet keep them on your computer and back up your files on a regular basis.
2. Separate your personal and business transactions
Separating your business and personal spending makes identifying business expenses simple and fast. As a business owner you need to establishing a separate bank account for business expenses makes it easier to track them it’s best practice to separate your personal and business income and expenses. Don’t mix your personal transactions with the business it becomes hard to track.
3. Categorize your business expenses and Regularly review them
Tracking business expenses no matter the size is a critical first step toward having the right data needed that helps not only for day-to-day or month-to-month management, but also for long-term decision-making that will benefits the business in handling employees, customers and suppliers and government regulations.
It’s very important to keep tabs on your expenses. Expense tracking tools such as Biashara Book make it easier than relying on the tedious manual process. While running your business it’s important to set aside each week in your to review the expenses creating categories to each one. The more a small business reviews its financial records the better it understands them and the more likely it is to survive and grow.
4. Cash basis accounting
Cash accounting would can be a more straightforward approach for small businesses to manage their cash because it records the transaction when the payment is received. Expenses get to be deducted in the tax year they are paid.
