Tracking Business Expenses

Tracking business expenses is one of those important on-going tasks that all business owners need to do. Luckily it is relatively easy providing you put good systems and practices in place when you are setting up the business.

So What are Business Expenses?

Business expenses are any purchases that you make on behalf of the business but may include some expenditure that is a mixture of both business and personal. For example, you might have a mobile phone or an internet connection that you use for both personal and business use. You can legimately claim a percentage of the cost as a business expense.

Why is Tracking Business Expenses Important?

Your business expenses are an important part of the profit equation for your business, too high and you are likely to make a loss. If they are not evenly spread across the year or if all your bills fall due at the same time, your cashflows will be very difficult to manage.

Tracking business expenses on an ongoing basis tells you how much cash you have already spent and where it went. It will also give you an indication of what you will have to spend in the future. If you don't track your expenses, you will not be able to balance your checkbook. You will have no idea how much money the business has left to spend!

And forget about forward planning. If you can't estimate likely cashflows in the medium to short term, you will not be able to plan for large expenditure or even be sure you can pay your bills on time!

Typical Business Expenses

Although some expenses will be specific depending on the type of business you are going to start, just about all business share quite a few common expenses.

Each business expense will be coded to an expense item or category in your accounting records, so when you are designing your chart of accounts it pays to select the groupings fairly carefully. If you have too many expense categories, you will get a lot of detailed information from your accounting reports but it will take a lot of time to keep the books.

Too few and you will say yourself some time doing the bookkeeping, but you might not have enough detail to support your decision making.

Some of the more typical expense categories are in the table below.

Tips for Setting up Expenditure Records

There are one or two things you can do to make the job of tracking your business expenses just a bit easier.

• Open a separate bank account for your business,
• Use that account for business purposes only,
• Make as many purchases as you can electronically or by credit card,

that way your expenses will be recorded on your bank statements

• Pay as many bills as you can electronically or by credit card, (for the same reason)
• Always ask for a tax receipt, even for expenditure under $50, and
• Update your books on a regular basis so that it does not become an overwhelming task.

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