So, you have a business…and you’ve realized it can be overwhelming and complicated to keep track of all your records. However, keeping track of your business expenses can save you thousands come tax time.
One of the first things we recommend to all business owners is to open a separate bank account and/or credit card for your business. Keeping your business separate from your personal expenses is a great business practice but it also makes organizing and tracking your business expenses a lot easier. If you have a separate account and/or credit card that you only use for your business you automatically know that everything on that statement is related to a business expense. That can be very helpful if you ever lose or forget a receipt. Also, you can go through your statement every month to make sure you did not forget to track any expenses that month.
Speaking of tracking business expenses, it would be encouraged to develop your own tracking system. Your method of tracking expenses can be as high tech or low tech as you prefer. Some prefer an old fashioned notebook, others upkeep an excel document, while some utilize a management software.
If you are interested in automation, the software route would be the best way to go. In fact, if you have a separate bank account, most programs can link directly to your bank or credit card and automatically record all your transactions. You simply need to tell the software what type of expense it was (i.e.: supplies, equipment, software, etc.). We highly recommend QuickBooks.
However, if you are looking for something lower-tech and lower cost. we also have compiled a worksheet to simplify the process and keep all your numbers in one place for your business. You don’t have to fill out the entire worksheet but use it as a tool to help rack your brain for anything that might be deductible for your business — so you can be better prepared for your taxes. Maybe use it as a checklist to compile your necessary documents.
Whichever method you use to track your expenses, do it regularly and consistently.
If you are not consistent with how you track your expenses, it can get confusing later on. The process may become overwhelming and make it difficult to keep track of where your business is financially. We recommend updating your business expense records at least monthly. We find that when people wait longer than that, they tend to forget expenses and exclude them from their reporting. The failure to record these expenses results in money lost at tax time.
In short, tracking your expenses and income on a regular basis gives you the most up-to-date financial information about your business. Doing so can help you to determine your business’s success if you can afford to grow your business, what areas you need to improve, and be better prepared for tax time.
At Verdant, your first consultation is always FREE. Visit our contact page to schedule an appointment!