Running an LLC or startup means wearing many hats, and learning how to track business expenses may not be the most exciting one. But with a bit of forethought, you can create a system that saves you time, money, and headaches.
In this article, we’ll teach you how to track business expenses in a way that’s simple to learn and easily fits into your routine.
The Hidden Costs of Automated Bookkeeping
Discover why AI-powered solutions could be costing your business $$$
Prepare for Success With Good Fundamentals
Unless your business has virtually no expenses, manually tracking with a spreadsheet is a poor idea. It’s prone to errors, time-consuming, and will cost you money through missed deductions or higher CPA fees come tax season.
It will be important to choose bookkeeping and receipt tracking software, but before we get there, let’s start on the right footing.
Begin by choosing your legal entity and separating business and personal finances. When you’re finished, you should have:
- A single business checking account
- A single business savings account
- A single business credit card
- A firewall between personal and business money
All expenses and revenue should flow into or out of the checking account. Day-to-day spending is put on the credit card, significant costs on a debit card, and a small portion of profit is saved to cover taxes.
Pre-separating finances simplifies everything. Categorizing business expenses is simple when they’re all in the same place. Plus, it saves you the headache of untangling commingled business and personal funds while maintaining the limited liability protection an LLC offers.
As an added layer of organization, it’s good practice to use different banks for business and personal funds. For instance, Huntington vs Chase. If your money is behind the same account login, it’s easy to accidentally mix things up.
| Pro tip: When you apply for a credit card, be sure to associate it with your business entity. Doing so builds business credit and makes debt financing easier to get down the road. |
Integrate Software
With business expense tracking, the goal should be to minimize omissions via human error. Software is how.
The first step is to choose your general accounting and bookkeeping tool. Quickbooks is of course the most well-known option, but we can also vouch for a variety of other tools:
- Bill.com is good for startups managing a high volume of invoices
- Expensify is helpful for teams with frequent travel and/or reimbursement
- Dext makes managing paper receipts easy by allowing you to digitize with a quick phone scan
Regardless of which software option you choose, they all integrate with bank accounts. Since you’ve built your cash flow system to flow through only a few places, everything will automatically be logged. From here, tracking business expenses is easy.
Periodically Review
Pointing this out may seem obvious, but you’d be surprised how many startup owners don’t regularly check in on their finances. But with business accounts in order, and software integrations logging expenses, the administratively tedious parts are handled. The hard part is over.
As a component of good cash flow management for startups, we advocate for small business owners and founders to build out a spreadsheet and manually write in every expense, income source, and investment semi-regularly. This isn’t expense tracking. The day-to-day bookkeeping tasks are handled by software. Rather, this is an exercise in visualizing where and how business funds are being used; it’s essential to strategic decision-making.
In fact, one of the things we often do with new clients is help them build a three-statement financial model: income statement, balance sheet, and cash flow statement. This is basically an in-depth version of a tracking spreadsheet. We use the model to gain a foundational understanding of a business, give clients an easy-to-use dashboard to visualize how things are flowing, and communicate financials with investors when it’s time to fundraise.
In short, automated accounting is a great tool, but shouldn’t replace human expertise and critical thinking.
It’s also worthwhile to periodically categorize business expenses within your accounting software. For one, not every expense is equally tax deductible: some are 100% deductions, while others are only partially deductible. Secondly, doing so will save you money come tax time, since your CPA won’t have to spend as long organizing your tax filings.
Conclusion
By separating business and personal finances, using dedicated accounts, and integrating software, you can simplify the tedious aspects of bookkeeping. From here, regular reviews ensure you stay informed and make the best strategic decisions available.
At indinero, we take the hassle out of managing your finances so you can focus on growth. We help growing businesses establish financial systems: from managing day-to-day bookkeeping, to building financial models and fractional CFO services, we’ve got you covered.
When the time is right, contact an indinero accounting expert for a complimentary consultation.
