Tracking business expenses come with a wide array of benefits. For instance, it helps you understand how much you are spending. And that’s just the tip of the iceberg. Let’s look at more such benefits.
It’s not uncommon to see small business owners focusing a vast majority of their time on activities that generate the moolah. It is definitely okay to focus on revenue. After all, that’s the raison d’être of every business.
But to be successful in the long run, it is important to understand where the money is going. Whether you are struggling month-to-month or are lucky to hear cash register jingling perennially, overspending can always take a toll on your bottom line.
To make matters worse, business owners are unable to calculate the profitability of their business accurately because they don’t maintain accurate records of their income and expenses.
They end up making a terrible mistake — they see regular sales pouring in, but just because they don’t track their expenses, they end up assuming that their business is more profitable than it actually is.
Result – more spending which ultimately leads to the downfall of the business. Proper accounting not only helps the company improve cash flow but can also assist them with ineffective tax planning, which, in turn, can improve the net margin.
Expense tracking might not be the most exciting aspect of any business. However, a little effort and a disciplined process can go a long way in securing your business. But what exactly is a business expense? Let’s find out…
What are business expenses?
Simply put, a business expense is a cost experienced by a business to generate revenue. These costs could include your spending on:
- Water and electricity
- Any other items, activities, or assets required for running your business.
Any expense that a business incurs during a particular accounting period is taken as a cost and put in income statement records which are also known as the Profit & Loss Statement. Following is an example of the income statement.
Why track business expenses?
So far we have established the fact that tracking business expenses makes you more aware of where your money is going and helps in calculating your profitability. But the list doesn’t end there. Let’s understand all the key benefits of tracking business expenses –
Elevated financial awareness & money management skills
Ever wondered what’s the biggest reason for the failure of most businesses? It is the shortage of cash. Small businesses must learn cash flow management through daily expense management. It is important so that the daily expenses go out of hand and outstrip the monthly income.
By monitoring expenses daily, businesses can control costs. Daily expense and income figures become a marker to identify whether a business is over or under its allocated budget.
Save on taxes
Most business owners dread tax season simply because they are ill-prepared for it. There is chaos and panic in the office and long hours are lost searching for invoices and receipts at the last minute.
By keeping all the income and expense records meticulously, an owner has everything ready during the filing of taxes. Remember – many expenses when correctly categorized are often tax-deductible, which means a business owner can either reduce their overall taxes or get a refund.
This might be a surprising one. Employees often provide receipts and proofs for travel expenses, meals, and other out-of-pocket expenses for reimbursements.
By maintaining a record of these expenses, business owners can ensure prompt and correct reimbursements, keeping their team happy.
Better profitability and cash flow
This is a given. Tracking business expenses makes calculating profitability so much easier. All they have to do is subtract the total revenue minus the expenses you have tracked. This simple calculation provides a clear financial record and indicates whether the business is making money.
However, most business owners never get to enjoy these benefits simply because they do not use expense tracking tools. And the reasons include –
- High investment – You need to buy a laptop/desktop and MS Excel, both of which cost a bomb.
- Shortage of time – Most business owners do not have time to open their desktop/laptop every day and feed in data into a large excel file.
- Data sources: In a business, a lot of data is generated from external parties (customers/ vendors/ partners), so business owners need resources to ensure centralized data entry
The Lio app completely eliminates the need for a desktop, laptop, and the software MS Excel. Yes, you heard it right. It is a mobile-first application and can be accessed anytime, anywhere.
It lets you keep an eye on your income and transactions from wherever you are through its in-built templates like Daily Spend Register and Expense Register.
Lio is designed for small business owners and not accountants. In other words, it is super-easy to use, and the learning curve is minimal. And the best part – it is completely FREE!
Step 1: Select the Language you want to work on. Lio on Android
Step 2: Create your account using your Phone Number or Email Id.
Verify the OTP and you are good to go.
Step 3: Select a template in which you want to add your data.
Add your Data with our Free Cloud Storage.
Step 4: All Done? Share and Collaborate with your contacts.
Here are the steps to manage your business expenses in Lio –
- Navigate to the Small Business category
- Either use the template ‘Expense Register’ or Create an Empty Document
- Modify the column names accordingly and start tracking your expenses.
And that’s it. All the data is saved on the cloud and is 100% secure. You create as many registers as you need and add as much data as you want.
You can even add participants to your file via their phone number or email. Alternatively, just share the file as a pdf or download the excel file.
Also Read: Know All About Small Scale Industries
Tracking business expenses in a transparent and meticulous way is crucial for the success of a business. It comes with both short-term and long-term benefits.
In the short run, a business owner gets to pay less tax and save money. You can review the expenses of your business when the cash flow suffers and learn where you have opportunities to cut.
In the long term, it helps the business owners identify where to put their money. Tracking business expenses also helps owners demonstrate to investors that their business is financially viable and they can be trusted borrowers.
Bottom Line: You can’t improve what you don’t measure