Tracking Business Expenses: Why You Can’t Afford to Be Lax
Tracking business expenses is often the last thing small business owners want to do.
We see it all of the time: You’re making sales, revenue is up and while you used to monitor every dime that you spent when first opening your doors, you now take a lax approach to spending.
And it’s this type of thinking that causes poor cash flow, which lack of cash flow is the reason for 82% of business failures.
Even when your business is doing well – an increase in revenue and profits every year – a focus on simplifying expense management is still one of the smartest decisions you can make.
Here’s Why You Should be Tracking Business Expenses
Cash flow is the lifeline of all businesses, and if you’re not tracking expenses, you won’t have the opportunity:
To Eliminate Unnecessary Expenses Eating into Your Cash Flow
Unnecessary expenses sneak up on businesses as they expand and hire new personnel. SaaS subscriptions, office spaces (when remote options will work just as well) and dozens of other expenses may easily be eliminated.
For example, if you have an in-house IT team, you can consider allowing remote work to save on:
- Office space rent
- Furniture
- Utilities
You may still need to purchase certain equipment for employees to do their job, but the savings far outweigh the costs. We recommend that you review all of your expenses and identify immediate expenses that can be cut.
If you have overlapping expenses, cut them.
A complete list of business expenditures helps you do more than eliminate expenses. You can also learn if there’s internal fraud taking place.
To Rule out Expense Fraud
Preventing accounting fraud starts with tracking business expenses. Business owners expect employees and contractors to be reliable, trustworthy and always put their best interests first. Unfortunately, fraud can happen due to many entities being involved:
- Accountants
- Human resources
- Personnel
Inconsistencies in expenses can indicate fraud. Perhaps you notice excess supply payments that don’t match inventory levels. You look through your books and realize that your employee keeps making payments for supplies that you never receive.
You can track and monitor these expenses to uncover and put a stop to the fraud.
Expense tracking also helps you minimize expenses and maximize profitability.
Using an application like BILL can also help prevent fraud. How? Here are just a few ways:
- Positive Pay: This feature verifies checks presented for payment against a list of issued checks, allowing the bank to identify and reject unauthorized transactions.
- Automated Accounts Payable (AP) Workflow: By automating the AP process, BILL reduces manual errors and opportunities for fraud. Digital payment methods protect banking information, and customizable approval workflows ensure proper segregation of duties.
- Internal Controls: BILL emphasizes strong internal controls, such as dual authorization for payments and regular account reconciliations, to make fraudulent activities more difficult.
These features collectively enhance security and minimize the risk of fraudulent transactions within the BILL platform.
To Optimize Spending for Profitability
Are your expenses sneaking up on you? You may be charging $100 for an item, and while you made a $20 profit in the past, material prices are now higher and eating into your profits. Optimizing spending may mean:
- Working with new suppliers
- Negotiating better deals with suppliers
- Purchasing in bulk for larger discounts
If you’re willing to pay invoices faster, some suppliers may even offer a discount on early payments to help you save money. A full look into your expenses allows you to focus on ways to become more profitable.
To Better Prepare for Tax Season
Tax season is stressful enough, but if your expenses are not organized, you may find yourself scrambling to get everything in order in time for filing.
There’s a good chance that your company generates hundreds or thousands of transactions each year. If you’re not tracking them, some expenses could easily fall through the cracks.
Those lost expenses may be missed opportunities to lower your taxes.
Tracking your expenses throughout the year, on the other hand, will make tax season less stressful and allow you to maximize your deductions.
Proper tracking also ensures that you have documentation to back up your deductions.
Sure, it takes time and effort to monitor your expenses, but it’s worth it if it translates to tax savings each year.
To Stay on Budget
Tracking your expenses is a smart way to ensure you’re staying on budget. Creating a budget is one thing, but sticking to it is another.
Expense reports can help you and your team identify spending cuts to improve cash flow and potentially free up resources that can be invested in growth.
If you’re not keeping track of your spending, on the other hand, you’ll have no reliable way of knowing whether you’re on track. You may be bleeding money on unnecessary expenses and not even realize it.
Tracking gives you a clear picture of where your revenue is going, and whether it’s going toward expenditures that are generating a positive return.
When you understand your business’s expenditures, you can make smarter decisions on where to allocate your resources and avoid spreading yourself too thin. But if you’re not tracking your spending, then you’ll be operating blindly and can easily go over your budget.
Final Thoughts
If you want to stay on budget, maximize tax deductions, optimize spending and reduce the risk of fraud, you can’t afford to be lax on tracking business expenses.
The great news is that technology can help automate the process to save you time, stress and avoid fraud. At Redmond Accounting, we help businesses leverage the power of BILL for bill pay and Expensify for expense management.
To learn more about setting up BILL or Expensify or how we can help you with your accounting needs, schedule a consultation now!
