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Tips for Managing Small Business Expenses

 

For small business owners, managing finances is one of the most fundamental tasks. 

Keeping an accurate track of business expenses can help business owners reduce the amount of tax they have to pay and avoid potential loss. But if bad financial habits slip through, managing business expenses become tedious, time-consuming, and more challenging than expected.

In this blog, we talk about a few things that small business owners can do on a daily basis to stay on top of their business finances. These tips are actionable and practical and can help small business owners improve their expense management strategy.

Don’t mix personal expenses with business expenses

Inaccurate accounting records, losing out on tax deductibles, personal liability- these are just some of the reasons why business owners should avoid mixing expenses. 

As a business grows, it becomes crucial to maintain a separate credit card for business or even open a different bank account solely for business purposes. Keeping your expenses organized can give SMBs accurate insights into their: 

  • Financial cash flow, 
  • Income and 
  • Business expenses.

Business owners can opt to maintain a physical logbook, spreadsheet, or choose an automated expense management software such as Fyle, to do all the heavy lifting.

Expense management softwares and corporate credit card reconciliations:   

Businesses can integrate their business credit cards with an expense management software for better expense tracking. They can use the software to mark personal expenses made using business credit cards. 

By doing so, they can avoid the risk of being audited for including personal expenses in their tax deductibles. Business owners also do not have to waste time skimming through hundreds of lines of credit card transactions looking for personal expenses.

Business owners can also use the software for credit card reconciliation. Manual reconciliation takes up vast amounts of time, and the risk of human error is likely.

By integrating their credit card with the software, the software automatically matches expenses with the transaction statement with a click of a button. Businesses can avoid spending precious working hours making hundreds of data entries and matching every expense to their transaction statements.

Maintain a clean record of your expenditure

Even if business owners are taking the help of bookkeepers and accountants, it’s important to educate themselves on simple accounting tasks and stay organized. Doing so can make the process of managing expenses much simpler. Additionally, business owners can avoid the horror of showing up in their accountant’s office at the end of the year with a pile of receipts and incomplete bank statements. 

If a business owner wants to save on taxes, they have to keep all their business receipts and maintain proper documentation of each business expense. The documentation comes in the form of an expense report and should contain details such as:

  • Date of expense
  • Name of the merchant where the item was bought
  • Name of the client the item was bought for
  • Purpose of purchase
  • Amount of the expense incurred
  • Category of expense

Receipts are challenging to keep track of but are essentials. In addition to receipt management, businesses should also maintain their expense report if they want a tax deduction. This is how an expense management software can help manage all expense documentation. It can:

  • Capture essential details in a paper receipt, thanks to its receipt scanning feature, It also turns any type of paper receipts into e-receipt. This means no more damaged or misplaced expense receipts.
  • Centrally stores all the expense documentation such as invoices, bills, and expense reports in one place. Businesses can access neatly organized information without scrambling through piles of receipts and expense report forms.
  • Extracts details from a receipt and auto-fills all the critical fields in the digital expense report. Hence, eliminating manual entry and human-prone errors such as double data entries.
  • Automatically attaches all the e-receipts to the expense report reducing the risk of mismatched or duplicate receipts.


Cut costs wherever possible

As businesses continue to grow, expenses grow along with them. There are multiple ways to cut down on expenses and save costs. Some ways where companies can do so are:

  • Negotiate a better deal with vendors

Business owners can dig deeper into what the market offers and bargain a reasonable price that won’t put them at a loss when making a purchase. Before making a payment, business owners must look at late payment penalties. They must also have a list of vendors to get the best discounts. 

  • Make business expenses using business credit cards 

Business expenses are opportunities to make use of corporate credit cards. SMBs have to make sure they pick a card that serves their needs and brings with it rewards and perks. No matter the type of business expenses, corporate credit cards are the best way to earn miles, points, and cash. 

  • Identify frequent vendors 

SMBs can look into vendors employees visit to purchase business essentials and services. For example, employers can look into hotels their employees often stay during business trips. They can use this information for potential partnerships or special discounts. 

  • Keep up with bills and avoid late payments

To avoid paying extra for late payments, SMBs should diligently keep track of their bills and payment dates. Especially, loans such as business credit card bills can cost businesses dearly. The fees may be small, but it can add up, leading to a larger amount over time. Paying on time is also crucial for tax, as it can lead to severe penalties if not done on time.

Make a note of expenses as well as ROI

Making business expenses are essential to keep the business running. But business owners should also measure their Return On Investment (ROI) to get a clearer picture of:

  • What expenses are necessary and worth continuing
  • Which investments are irrelevant and a bad bet for the business
  • Which expenditure is costing more but isn’t paying off

Focusing and improving ROI can increase profits, reduce unnecessary expenses, as well as improve operational efficiency. Measuring ROI can help SMBs measure their success time and make business decisions. It can also enable business owners to understand how their business is doing and identify which areas need improvement to achieve their financial goals.

The bottom line

For growing businesses, the more they understand about their business expenses, the better they’ll be at managing it. Small businesses can also use a digital-first approach to develop their business and automate repetitive tasks.

Small business owners can evaluate and invest in technologies that will match their scale and needs. Doing so can help them build skills and stay up-to-date with industry trends and grow along with their business. 

Adopting an expense management software for managing business expenses can help save costs and enhance operational activities. It can also help gain an advantage over competitors by spending less time doing mundane and repetitive tasks. They can instead use their time to focus on more important tasks and increase efficiency and productivity.

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