The Ultimate Guide to Expense Tracking for Small Business Owners

If you’re looking to take control of your finances without drowning in spreadsheets or losing track of receipts, you’ve landed in the right place. 

Imagine effortlessly monitoring where your money goes, pinpointing cost-saving opportunities, and empowering yourself with data-driven insights that propel your business forward.

doola Bookkeeping with automated expense tracking is the secret sauce to unlocking your company’s financial potential. 

We’ll break down everything from simple tips to essential tools that automate bookkeeping and expense tracking for small business owners. 

Get ready to take control of your cash flow and empower your business for sustainable growth! 

Why Expense Tracking is Crucial for Small Business Success

Tracking every transaction and sorting through a heap of receipts is no fun. But with expense tracking, you have a clear understanding of where your money is going and whether it’s being spent efficiently.

However, there are some really good reasons why expense tracking is vital for small business success:

• Seamless Tax Filing: You’re more likely to file an accurate tax return if you are tracking your expenses for the whole tax year.

• Reduced Tax Bill: Claiming your tax deductions will be less headache-inducing since you won’t spend hours sorting through a pile of receipts.

• Easy Budgeting: You’ll know exactly where your money is going every month so you can cut spending where it’s getting out of hand.

• Better Cash Flow Management: By tracking expenses, you’ll know when bills are due and when revenue needs to come in to cover those costs.

Types of Business Expenses to Track

By identifying what type of expense you should be tracking, you’ll be better equipped to make informed decisions about budgeting and improving your business processes. 

• Fixed Expenses: These are recurring costs that remain relatively constant each month, such as rent, insurance premiums, and salaries. 

• Variable Expenses: Unlike fixed expenses, these fluctuate as per your business activities or needs, such as supplies and inventory costs, marketing expenses, and travel costs.

• One-time Expenses: One-time or non-recurring expenses occur irregularly or only once in a while. Recording these one-time expenditures can help you avoid unexpected cash outflows during tax season.

• Overhead Expenses: These refer to the ongoing operating costs of basically everything needed for day-to-day operations that isn’t directly related to generating revenue.

• COGS (Cost of Goods Sold): These expenses are associated with producing or acquiring the goods or services that your business sells.

• Indirect Expenses: These expenses are those that cannot be directly linked to specific products or services but are necessary for overall business operations.

• Depreciation: It is a non-cash expense that needs to be tracked because it refers to the decrease in value of an asset over time due to wear and tear.

• Interest: If you have any business loans or credit card debts, you will incur interest charges on these balances.

How to Set Up an Efficient Expense Tracking System

Expense tracking helps small business owners to stay on top of their finances and make tax season a breeze.

However, setting up an efficient expense tracking system for small business owners can be confusing if they don’t follow these four key steps.

1. Choosing the Right Method

There are three methods for expense tracking for small business owners; which one you choose depends on who’s doing the bookkeeping.

• Manual Tracking: If you’re just starting out and don’t have many expenses to track, you can do it yourself using an Excel spreadsheet.

• Digital Tools: For something a bit more automated, you can use expense tracking software like doola Bookkeeping, which integrates with bank feeds for automatic categorization.

• Professional Bookkeeping Services: If you don’t have time for any of the above, you can outsource these tasks to professional bookkeepers.

2. Setting Up Separate Business and Personal Accounts

Expense tracking can be tedious if your business purchases are paid from the same account you used to buy groceries. This could mean you forget about a business expense and miss claiming a deduction or a personal expense ends up on your business tax return, and you get fined by the IRS.

The best way to avoid all of these problems is to open a dedicated business bank account with its own dedicated credit card to pay for business expenses.

This also streamlines tax preparation processes and provides a clear picture of how much money is being spent on business-related activities.

3. Categorizing Expenses for Better Insights

Categorizing expenses allows you to see where exactly your money is going each month. This step will help you analyze your spending patterns and decide where to cut costs or invest more.

By consistently assigning each expense to its designated category throughout the year, you can make accurate financial statements that reflect the current state of your business’s finances.

4. Creating an Expense Policy If You Have Employees

Establishing an expense policy is crucial if you have employees who make purchases on behalf of the business. This document outlines the procedures and rules for approving, recording, and reimbursing expenses. 

A well-defined expense policy helps prevent fraudulent activities, ensures compliance with tax regulations, and keeps everyone accountable for their spending.

Best Expense Tracking Tool for Small Businesses

doola Bookkeeping is an all-in-one accounting tool designed specifically for hands-off expense tracking and bookkeeping. It offers a wide range of features, including the ability to import bank statements to track cash flow and ensure accurate transaction recording.

doola Bookkeeping also automatically categorizes expenses into relevant categories, saving you time and effort in manual data entry. Moreover, if there are any discrepancies or unusual expenses, the tool will highlight them for your review.

In addition to expense tracking, we also provide you with accurate financial statements so you can understand your finances and monitor your cash flow. 

This makes it easier to prepare your tax returns, analyze spending patterns, and identify areas where cost-cutting measures can be implemented.

Features

✅ Track Transactions

✅ Send Invoices

✅ Download Financial Reports

✅ Connect Multiple Bank Accounts

✅ Dedicated Bookkeeper

✅ Monthly/Quarterly Closings

✅ Maximize Tax Deductions

✅ 1:1 CPA Consultation

✅ Business IRS Tax Filings

✅ Annual State Tax Filings

✅ Dedicated Account Manager

✅ Sales Tax Registration & Reseller Certificate

Pricing

Our flexible pricing plans start at $25 per month for the software.

We also have an All-in-one Accounting plan starting at just $250 per month, which includes all advanced features.

Automating Expense Tracking for Small Business Owners: Save Time & Reduce Errors

As a small business owner, your time is valuable and should be spent on growing your business rather than manually inputting expenses into spreadsheets or sorting through piles of receipts. 

By using an automated expense tracking system like doola Bookkeeping, you can ensure that all business transactions are accurately captured and categorized automatically.

Since all expenses are stored digitally in one central location, there is also no need to worry about lost receipts or inaccurate records as everything is digitized and securely stored in the cloud. 

Our Catch-up Bookkeeping also eliminates the hassle of digging through files for proof of purchase and gets your books ready for tax season.

Common Expense Tracking Mistakes & How to Avoid Them

🚩 Mixing Personal and Business Expenses

It may seem convenient to use the same credit card or bank account for both personal and business purchases, but this can quickly lead to confusion and errors in record keeping.

This can result in either over or under-reporting of expenses for tax purposes, which could have serious consequences for your business. 

As we have already covered, the best way to avoid this problem is to open a business bank account. This will ensure accurate bookkeeping and seamless expense tracking for small business owners.

🚩 Not Keeping Receipts and Documentation

Receipts serve as proof of purchase and can also be used as supporting documents during tax audits. 

Without proper documentation, you may miss out on valuable deductions or face penalties if your records are not up-to-date.

🚩 Failing to Update Records Regularly

Recording every transaction, whether it’s a petty cash expenditure or a large invoice payment, should be done in a timely manner. If you wait too long before recording these transactions, you risk forgetting or misclassifying them in your records.

To avoid this mistake, consider setting aside time each week to organize your records and update your financial information without feeling overwhelmed.

🚩 Not Reconciling Accounts Properly

Reconciliation involves comparing your recorded transactions with those on your bank statement or credit card statement to ensure they match up correctly. Since manual reconciliation is tough and time-consuming, small business owners often delay it or avoid it completely.

However, you can easily automate this process by syncing your bank and credit card statements with your bookkeeping software for real-time reconciliation.

How doola Bookkeeping Can Help You Stay on Top of Your Expenses

With doola Bookkeeping, you can take control of your finances and stay on top of your expenses without the hassle of tedious manual tracking. 

But don’t take our word for it yet! We will elaborate more to help you see the difference it can make for your business.

• Automated Expense Tracking: You don’t have to input every expense into a spreadsheet manually since the system automatically tracks all incoming and outgoing transactions.

• Categorization and Organization: doola categorizes each transaction based on its type, allowing you to easily identify where your money is being spent.

• Real-Time Updates: By syncing in real-time with your accounts, doola Bookkeeping enables you to make quick decisions regarding cash flow management or budget adjustments without having to wait for end-of-month reports.

• Budgeting Made Easy: Do you struggle with sticking to a budget? This feature helps track overspending and provides insights into areas where cost-cutting measures can be implemented.

• Tax Preparation Assistance: With doola Bookkeeping’s detailed year-end package, tax preparation becomes a breeze as all necessary information is readily available at your fingertips.

Implement an Automated Expense Tracking System With doola Bookkeeping

Our expense tracking and bookkeeping software automatically records and categorizes expenses in real-time, eliminating errors and saving you valuable time.

In addition to compiling all your business transactions for you, we’ll also give you an intuitive dashboard to view real-time financial statements, streamline cash flow management, and make tax time a breeze.

However, automated expense tracking is just one aspect of what makes doola stand out from other bookkeeping software on the market. 

With our dedicated bookkeeping services, you won’t have to worry about missing receipts or incorrect data, as the experts will take care of everything.

Book a demo with us to ensure your expense tracking is in good hands!

FAQs

How often should I update my business expense records?

It is recommended that you update your business expense records on a weekly or monthly basis. 

If you have fallen behind by a lot, our Catch-up Bookkeeping services can get your books ready before tax season approaches.

Can I use personal credit cards for business expenses?

Ideally, you shouldn’t use a personal credit card specifically for your business expenses. 

However, in some cases where using personal credit cards for certain transactions may be necessary, make sure to clearly label these charges as “business” when recording them.

What happens if I don’t track my business expenses properly?

Failing to keep accurate and up-to-date records of your business expenses can result in serious consequences, such as IRS audits or penalties during tax season.

Do I need accounting software? Can I track expenses manually?

The use of accounting software can simplify the process of tracking your business expenses by automating tasks such as data entry and categorization.

However, if you have a very small business with limited transactions, manually tracking expenses using a spreadsheet or similar tool may suffice.

How can I prepare my expense records for tax season?

As tax season approaches, you must start organizing all receipts and invoices, reconciling bank and credit card statements, and double-checking for any errors or missing entries. 

You can also utilize doola’s smarter tax solution to ensure seamless state and annual tax filings and compliance with IRS laws.