How to Keep Track of Your Business' Expenses

Maintaining your business’s financial health can depend on how you track your expenses. Whether you run a small business or a larger one, organizing expenses could position you to make better decisions, manage your budget and prepare for tax season.

If you need help managing your business, a financial advisor can recommend strategies to manage cash flow, reduce tax liabilities and plan long-term growth.

Understanding Business Expenses

Business expenses are the costs incurred in the ordinary course of running a business. These expenses are essential for generating revenue; and as such, they can be deducted from your income taxes to reduce your overall tax liability.

Common examples of business expenses include:

• Rent for office space
• Utilities
• Employee salaries
• Office supplies
• Travel expenses
• Marketing costs
• Legal and/or accounting fees
• Software subscriptions

You should make note to differentiate between capital expenses, which are investments in long-term assets like equipment or property, and operational expenses, which are ongoing costs for daily operations.

This is important because they are treated differently for tax purposes. Capital expenses are typically deducted over time through depreciation, while operational expenses can usually be deducted in the year they occur, affecting your taxable income.

How to Track Your Business Expenses

To track expenses, many businesses organize receipts, use accounting software and regularly categorize costs as operational or capital for accurate budgeting and tax reporting. Here seven basic steps to help you get started:

1. Open a business bank account: A dedicated business bank account allows you to monitor your company's cash flow, avoids mixing personal transactions with business ones and prepares clear records for tax filing and deductions.
2. Use a corporate credit card: A business credit card generates monthly statements that give a clear overview of your company's spending. It also makes it easy to spot unusual transactions or fraudulent activity. In addition, many business credit cards offer benefits like cashback, discounts or travel rewards that save you money on recurring expenses.
3. Have an expense policy: Employees should understand what qualifies as a business expense and how to report it. Your policy should outline allowable expenses, documentation requirements (like receipts) and the reimbursement process. A strong expense policy reduces confusion and minimizes the risk of unauthorized spending.
4. Choose the right accounting software: Expense reports apps and software like QuickBooks, FreshBooks or Xero can categorize transactions, generate financial reports and prepare tax documents. Look for software that integrates with your business bank account and credit card and offers features like automated invoicing.
5. Connect financial institutions: Many accounting software programs allow you to link your business bank account and corporate credit card directly to your bookkeeping system. This connection automatically imports transactions, making it easier to categorize expenses and reduce manual entry errors.
6. Use invoices: Keep records of all invoices sent to and received from vendors, clients and contractors so you can track income and expenses more efficiently.
7. Record expenses regularly: Set aside time each week or month to update your expenses. This habit helps you avoid missing transactions or receipts, makes tax preparation easier, and gives you a clear view of your business's financial health.

Benefits of Tracking Business Expenses

Tracking business expenses could help you manage cash flow, reduce tax liabilities and improve budgeting decisions. Here are three general benefits to keep in mind:

• Improved financial management. Accurate expense tracking helps you understand where your cash flow is going, allowing you to manage your budget, cover operational costs and invest in growth opportunities.
• Tax preparation and compliance. Keeping detailed records of your expenses simplifies the tax filing process and ensures you claim all eligible deductions, reducing your tax liability and avoiding potential audits.
• Accountability and transparency. Maintaining accurate expense records promotes financial transparency and accountability, which is important for building trust with stakeholders, investors and employees.

Bottom Line

Tracking your expenses could help you maintain your business’s financial health and support better decision-making. Using a systematic approach with the right tools and policies can also simplify expense management, saving you time, money and stress.

Tips for Businesses

• A financial advisor could help you manage your business by creating a financial plan to project future income, cash flow and changes to the balance sheet. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
• If you want to learn more about creating a financial plan for your business, this guide will walk you through the basic parts .

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