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Which Business Expenses to be Tracked?

Which business expenses to be tracked

If you are just commencing your business or if you are looking to expand soon, you need to track your business expenses. Tracking business expenses will help you minimize your taxable income, but it will also help you control your business.

  • Business expenses cover both the cost of goods sold, as well as the normal and necessary operational expenses associated with running the business.
  • There are costs associated which include rent, salaries, business licenses, permits, and self-employment.
  • Separating your business finances from your finances helps you more effectively track your business expenses.
Categories of Business Expenses:

It helps to analyze your business expenses. This can tell how you prioritize them in budgeting, and it’s easier to spot areas where you can easily costs if you need to.

  • Fixed: Fixed expenses are things that do not vary from month to month. These are items like mortgages, depreciation, insurance, salaries, and rent. While many of these expenses can change over time, they are usually fixed for the duration of a lease, agreement, or contract.
  • Variable: Variable expenses are the opposite of fixed expenses. They are necessary spending, but their total cost will vary with each billing cycle. Utilities often fall into this category. Inventory, commissions, and credit card fees are common examples of variable expenses.
  • Period: Period expenses can be fixed or variable, and they come at regular intervals. Examples of fixed period costs would be the mortgage, while variable period expenses would include utilities and insurance.
  • Interest: Interest can be fixed or variable. Many interest costs are bound to period expenses, but something like credit card purchases for travelling employees can be per transaction.
  • Depreciation. Depreciation is typically a fixed variable expense. It is necessary to help calculate the ROI on replacing major items. It is also typically a tax-deductible expense.
What are are few common Business Expenses?
  • Advertising
  • Bank fees
  • Commissions
  • Consulting fees
  • Contract labor
  • Dues and subscriptions
  • Mileage
  • Office Supplies
  • Postage and delivery
  • Printing and copying
  • Salaries
  • Software
  • Travel
  • Utilities
Some of the most common business expenses include tax-deductible:
  • Payroll expenses
  • Employee benefits
  • Home office expenses
  • Insurance premiums
  • Rent or mortgage payments
  • Retirement plans
  • Depreciation of equipment
  • Interest expense
  • Taxes
  • Donation
  • Digital Transactions
  • Business Utilities
Types of expenses that are not tax-deductible:
  • Political contributions
  • Government fines or penalties
  • Demolition losses or expenses
  • Certain education expenses
  • Legal fees
  • Capital expenses
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How to Track Business Expenses?

The first step to doing so is separating your business expenses from your personal expenses. This will help you understand how much you’re spending as a small business owner. Thus managing your expenses will increase profitability.

Many small business owners track their business expenses using Microsoft Excel. However, this method increases the chance of human error as your business grows, can be difficult to keep organized.  

What are business expenses?

Business expenses are those expenditures that relate directly to starting and maintaining your business. They include expenses like inventory purchases, wages, and salaries, etc. 

There are two types of business expenses: cost of goods sold, which are costs associated with making your product; and operating expenses, which include rent, salaries, business licenses, and permits, and self-employment.

Businesses need to track and classify their expenditures because some expenses can count as tax reductions, resulting in important cost savings. This means you’ll pay less at tax. It will demonstrate to lenders that your business is fiscally responsible and can be a trusted borrower when you need financing. 

Follow the points to track business expeses: 
1. Open a business bank account

As a new business owner, you will need to open a business bank account. There may be an instance when you use your bank account for business purposes, having a separate business account will make it much easier to track and record your expenses properly.

You’ll need to open:

· A business chequing account

· A business savings account

· A business credit card

 2. Choose an appropriate accounting system

You have a choice about what kind of accounting system to use for your business. While the best option is to choose an accounting software application that will work for your business, you can also use spreadsheet software, such as Microsoft Excel to record income and expenses for your business.

3. Managing Receipts Properly

Here are some strategies to keep paper receipts organized:

· Keep a separate envelope in your purse or bag for business paper receipts. 

· Use file folders. At the beginning of the year, make one for each month and file your receipts accordingly. 

· Use binders. Buy plastic sleeves and label them by month or category. 

You can store receipts digitaly, many apps are available to make it easier to store receipts digitally. 

4. Make a Spreadsheet

If you’re just starting a business this option works if you prefer a low-tech approach to track your expenses. As your business grows you’ll want to use a more sophisticated tracking method. 

Spreadsheets are also easy to import into your accounting software to batch add expenses. Make a spreadsheet in Excel or Google with the following columns:

  • Date
  • Category
  • Vendor
  • Cost
  • Purpose 

 Consider using the following categories:

  • Marketing
  • Client meals
  • Home office or office rent/mortgage and utilities
  • Travel expenses
  • Office supplies
5. Select an accounting method

The cash-basis method is the simplest accounting method for small business owners. With the cash method, you record income when you receive it and expenses when you make payment.

The accrual basis is more complex than the cash-basis method and uses additional accounting categories. In accrual accounting, you record income and expenses when you incur them, regardless of when you receive money or pay.

Consider the size of your business when selecting your accounting method.

6. Use software to track and analyze business purchases.

Most accounting software programs create expense categories. It will help reduce the time you spend preparing your tax returns.Many budget tracking tools can also help you calculate monthly expenses, track personal capital, and even sync with your credit or debit card.