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Small Biz Expenses

Small business owners wear many hats, and most of the work falls directly on your shoulders. When you're juggling so many day-to-day responsibilities, it's easy to let some tasks slip through the cracks – and keeping a handle on expenses and financial records is one of them.

But properly tracking business expenses is a key to small business success. Staying on top of this task offers a number of benefits, from managing cash flow to easier accounting on tax day to qualifying for a loan.

These six tips will help you track your business expenses like a pro.

Pen and calculator on top receipts for a expense report.

1) Separate Personal and Business Expenses

Even if your business is very small (we're talking sole-proprietor-level small), keep your personal and business expenses separate. Not only will this separation make tracking business expenses easier when tax day rolls around, it can also help protect your personal assets in the case of an audit or lawsuit.

Keep expenses separate by setting up a checking account, saving account and credit card just for business use.

2) Clearly Identify Business Expenses

In order to track expenditures properly, you must first identify exactly what constitutes a business expense. Knowing what counts (and what doesn't) is the first step. If you're not sure, consult with an accountant or tax attorney.

As a general rule, the Internal Revenue Service identifies qualifying expenses as "costs of carrying out your business." Some of these costs may be tax-deductible, such as:

  • Advertising and marketing
  • Banking fees
  • Commissions
  • Computer equipment
  • Consulting fees
  • Copying and printing
  • Mileage
  • Office equipment
  • Office supplies
  • Postage
  • Subscriptions and membership dues
  • Software
  • Travel
  • Utilities

3) Set Up a Bookkeeping System

When it comes to choosing a way to organize expense records, you've got options. For many business owners, using accounting software – such as Quickbooks or Wave – offers the easiest route.

For a lower-cost alternative, simply set up a spreadsheet. The Small Business Administration recommends using a balance sheet to track both expenses and provide a cash flow projection to use for planning.

Keep physical records – like paper receipts, bills, canceled checks and invoices – organized in a file cabinet, binder or expanding file folder.

4) Choose Cash or Accrual Accounting

Choose how you'll track your expenses: Select the cash or accrual method.

The cash accounting method is simple; just record a transaction when money enters or leaves your account. Many sole-proprietors and very small businesses use this method.

Under the accrual method, you immediately record payments or income, whether or not the money has entered or left your account. This approach is more in-depth and is recommended for larger businesses and those with employees.

5) Use Mobile Apps

Mobile apps make it easy to track expenses, even when you're out and about. Download expense tracking software to your smartphone to help you keep a handle on your recordkeeping. Highly rated options may include:

  • Clarity Money
  • Mint
  • Mvelopes
  • Personal Capital
  • QuickBooks
  • Wally
  • YNAB

6) Automate Everything

When you're a busy small business owner, it's easy to overlook tasks. Fortunately, digital technology can help you stay on track.

Automate everything you can to make record-keeping easier. Connect accounting software and apps to your financial institution, so data is transferred automatically.

That way, when you make an online purchase or scan a receipt into a smartphone app, the data is captured for your records.

No matter what stage or size your business may be, proper expense tracking is a key to success. Setting up a bookkeeping system and utilizing helpful digital technology can remove some burdens from your shoulders. Now, your records will be ready for tax time!

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