Whether you’re building a home-based business or at the helm of a Fortune 500 company few things will undercut your ability to turn a profit like losing your grip on expenses.
Of course, big companies have accounting firms or staff tasked with keeping an accurate tab of how they spend their money. Home-based startups often don’t have the luxury of enlisting an accountant or even a part-time bookkeeper to help manage their firm’s books.
Still, this is an area that is too important to be ignored, and every business owner can do a better job of organizing their records so they are tracking expenses accurately and efficiently.
Not doing so has real costs down the road in the form of more hassle at tax filing time — potentially resulting in a higher tax bill — and the likelihood that your business is losing money on needless costs that are slipping below your radar.
So much of your business’ success rides on how well you balance essential costs, revenue and cash. And that starts with ensuring you have a system in place that you can rely upon to give you an accurate, real-time snapshot of your finances.
Let’s face it, as the owner of a small business, you need every advantage. Consider that only about half of all new U.S. businesses survive five years or longer, according to the U.S. Small Business Administration.
The ability to gauge how your business is growing, or why it isn’t, begins with having good information.
Organization Is Key
How do you get good information on your business’ spending and revenue? By organizing your books, ideally using software that can streamline the process, leaving you more time to devote to the areas of your business that will lead to higher profits.
One way to organize is to establish a chart of accounts that will help you map out how cash moves in and out of your business. This could be as simple as making baskets that separate recurring from variable expenses, or those costs that are directly tied to revenue.
Take time to give this some thought, especially early on if you’re just getting your business off the ground. The goal here is to organize your accounts in a way that will still work for you over the next few years.
What you come up with can help in setting up bookkeeping software.
By better organizing your accounts, you’ll have an easier time tracking down expenses, whether you need to provide documentation come tax filing time or you’re hunting for unnecessary costs to cut.
It’s a good idea to get into the habit of reviewing your accounts at least once a month to ensure you’re not missing an emerging problem with your cash flow. A well-organized system of accounts can ensure that your monthly review isn’t too painful, which should help encourage you to do it more often.
An Array of Benefits
Keeping accurate, up-to-date books has benefits beyond your own sense of your business’ health.
When you track your accounts digitally with a cloud-based bookkeeping program, you’re also making it easier for your tax accountant to do their job. And that means a better chance that you’ll have fewer headaches come tax filing time.
For example, using a document management system to keep your expenses organized will help your accountant easily connect the outflow of money from a bank account to an invoice you paid. No more chasing down old receipts.
If you’ve not yet embraced digital receipt tracking, what are you waiting for? Take your pick from any number of free and for-a-fee mobile apps that you can use to scan receipts so you can easily access a record of your spending.
Relying on technology to secure and more efficiently track your expense data has value, and not just for your tax professional. It can help you avoid bookkeeping errors that could lead to significant, avoidable costs.
Using a cloud-based system that incorporates all your key transactions can help you streamline how you manage your business by automatically handling tasks such as invoicing customers or making payments — all while keeping track of money going in and out.
This approach provides a real-time view of your business’ financial health and frees you from hours of entering data into a spreadsheet when trying to track down an invoice or determine whether a supplier was paid.
Another way to solidify how you track expenses is to make more payments with credit cards, which account for a mere 3.3% of small business payment transactions, according to the SBA.
The major credit issuers offer a suite of built-in transaction tracking for business clients. Everything from charts breaking down spending by category to details on when payments were made, in case you need to show proof down the road.
Of course, paying off expenses charged to a credit card before you rack up interest charges is essential to reducing unnecessary expenses.
Still, built-in tracking features can make credit cards a good option, especially since there are now platforms that allow you to use credit cards to cover expenses that are ordinarily cash only.
Businesses can now pay virtually any bill with a credit card with just an email address, without the need for account numbers to change hands, or for the payee to have a merchant account.
Cash Flow Awareness
Ultimately, having a clearer view of your business’ expenses and other transactions is the foundation for good cash flow management, the key to staying on the profitable path.
Small businesses are more vulnerable than most when it comes to managing their cash flow. Accurate organization and tracking of your accounts is essential to avoiding potential cash flow problems that could leave you scrambling for funds when you need them most.
It may seem like drudgery, but taking time to ensure you have a good system in place for properly tracking your expenses is at the heart of keeping your business on the right track.
Technology can help, and business owners should weigh the range of financial software and services available, and consider their cost against that of taking a less organized, but ultimately costlier, approach.
