Running a business can be stressful, especially when you have lots of moving parts. Staying on top of everything can sometimes seem impossible but one thing you should always keep track of is expense management. Real-time expense management allows you to see how profitable your business is without digging through the invoices. It saves time, money and more importantly, it reduces managerial stress.
6 reasons why you should actively track business expenses
- Improve money management
- Be better prepared for tax season
- Identify bad spending habits and create an effective budget
- Make business forecasting easier
- Create financial awareness and ask important questions
- Improve workflow
1. Improve Money Management
One of the biggest reasons businesses fail is the lack of understanding or poor execution of money management. As your business grows, it’s not as straightforward as buying materials, creating your product and selling them to a customer; often, there are costs such as taxes and rent to consider. By not considering these costs, your profit margin is significantly lower, and it will harm your business model. Keeping a record of your expenses and income will remove the guestimation and accurately balance your business.
While you could set up a spreadsheet, it might be better to consider accrual or cash accounting. Cash accounting, put simply, acknowledges revenue and expenses when they are paid (not billed). A professional accountant generally undertakes accrual accounting, so it specifically reflects your business activity.
2. Prepare for Tax Season
For business owners, there are different rules during tax season. One of the best things about expense tracking is that you are able to identify what is tax-deductible on the income statement and account for it. On your balance sheet, you will also be able to list taxes as a current liability to know exactly what taxes you have paid each month. By tracking your expenses, tax time becomes less stressful because you are no longer running around looking for receipts and invoices.
3. Identify Bad Spending Habits
When you are actively managing your expenses, you will become more aware of your bad spending habits. You will be able to see how beneficial each expense is to your business and identify all costs. By managing your spending, you will also be able to set limits on certain expenses and prioritise your expenses in order of importance.
Surprisingly, one of the biggest benefits to expense management for businesses is they have detailed documents of exactly where their money is going. Some common expenses that are often not thought about by managers or business owners include marketing, utilities, employees salaries or wages and office supplies. By tracking your expenses and understanding what you are spending money on, you are less likely to waste money on manufacturing costs and will budget more effectively.
4. Easier Business Forecasting
An element of running a business is to be able to predict and forecast future profitability accurately. It is a way to attract investors or potentially grow your business. If you do not track your expenses, your forecasts may be falling short of your goals. By tracking your spending and setting up an effective budget, you will not only be able to forecast profitability more confidently but also be able to market yourselves to new suppliers or investors.
5. Financial Awareness and Important Questions
One of the biggest reasons you track your business expenses is that you become aware of all your expenses. Once you become aware of fixed costs, one-off payments, and variable costs, you can set limits and reminders within your organisation on their spending behaviours. To get started in setting limits and practising financial awareness, you need to consider the following questions:
- Are you spending more than you bring in?
- Where do you spend the most money?
- Are you overspending in areas?
- Are you getting the best deal from your suppliers?
- If needed, where can you cut costs?
6. Improve Workflow
Finally, the biggest benefit to tracking your business expenses is that you will be able to improve your processes, so they are more efficient and account for the cost involved. Understanding all of the costs involved in running a business means that it is easier and more effective to manage your contractors and suppliers and organise your employees.
Now that you know why you need to track your expenses, you will need to consider how you will track these expenses. There are many expense tracking applications and software models available, so it’s important to do your research into which one will work best for your business. At Acumen Computer Systems, we can provide your business with an integrated point of sales system that can improve your workflow and work with your expense tracking system to provide you with accurate inventory management, sales reporting and account keeping. If you need a new point of sales system to help you grow your business, get in touch with our team by calling 1800 167 489.