Everything has a cost to it, and running a small business is no exception. In addition to providing excellent products and services and running your business, as a small business owner, you’ll also want to stay on top of what money is coming in and going out.
The “going out” portion of your finances will primarily comprise business expenses, and since you’ll likely have many of them, they can be hard to track. In this blog post, I’ll discuss some of the best ways to track your expenses and keep your books tight and tidy.
Types of business expenses
If we’re going to talk about business expenses, we need to do a little background on the different kinds of expenses you’ll need to track.
Some common types of business expenses are:
- Accrued expenses
- Convention expenses
- Indirect costs
Accrued expenses (or accrued liabilities) are costs that your business must pay in the future and can be listed on your balance sheet before the payment is made. They are recorded as current liabilities because they represent an obligation to pay for goods and/or services in the future.
Examples of accrued expenses include rent, utilities, salaries, accrued loan interest, unused vacation time, certain taxes, and more.
Convention expenses refer to certain expenses you incur in attending business conventions that the CRA allows you to deduct every year. For example, expenses like registration fees, booth fees, airfare, and hotels can be written off for up to two business-related conventions per year.
Indirect costs (sometimes referred to as overhead costs) relate to expenses that are not attributed to creating a single project, product, or service category for your business. For example, internet service, office supplies, insurance, accounting and legal expenses, etc.
When you record these expenses in your books, it’ll be essential to distinguish which kind of expense is which because they will impact your finances differently.
Separate personal and business accounts
Small business owners everywhere struggle with keeping their personal and business expenses separated from each other. This distinction can be especially difficult for freelancers or consultants who feel like they are their business.
It can be easy to blur the lines for things like office or cleaning supplies.
For example, let’s say you do your monthly Costco run for groceries, and while you’re there, pick up microfibre cloths, floor cleaner, pens, and printing paper because you’re running low at the office. You pay for it all on your personal credit card and think nothing of it. If you get into the habit of doing this every time you go, sorting through your receipts when it’s time to manage your books is going to be a nightmare.
The best advice is to create separate business accounts exclusively for business expenses. Most business owners open business chequing and savings accounts and use separate credit cards.
Obviously, you’ll use your business cards for business purchases and personal cards for personal purchases. If you don’t think you’ll be able to easily distinguish between business and personal items, make lists before you go shopping and don’t impulse buy. You could also consider taking separate trips: one devoted to business purchases and one devoted to personal.
Sources like Entrepreneur recommend avoiding using cash at all costs, especially for business expenses. Cash is easy to spend, and it doesn’t track automatically with a transaction history as credit or debit purchases do.
Digitize your receipts
Before the advent of the internet, filing and storing paper receipts were the norm for every small business. You’d collect receipts in envelopes and file them on a daily or weekly basis, store them in labelled binders or accordion folders, and lock them in a filing cabinet.
Although many SMBs still store their paper receipts this way, the trend is moving towards digital alternatives. Many mobile apps and software make it easy to store receipts digitally, like QuickBooks Online or Xero. You can scan (take a photo) of your receipt the moment you receive it and enter relevant purchase details that will store in your account in real-time.
Many of these apps will also automatically add the expense to your books, so you don’t need to waste time on data entry later. Also, since apps operate with cloud storage, the odds of you losing your receipts (or any of your records, really) are virtually non-existent.
Best expense tracking apps & software for small business owners in 2021
There are many expense tracking apps out there. The Balance compiled a fairly comprehensive list of them and noted the pros and cons of each. However, the list focused on apps that were good for business expenses and personal budgeting. So, I’ve highlighted three apps and programs that are best suited for small business owners.
The best expense tracking software and apps for SMBs are:
- QuickBooks Online
QuickBooks Online has the most features out of any other expense tracker listed here because you can use it to handle all your finances. You can run payroll, accept online payments, manage invoices, upload receipts, and track bills and expenses from one dashboard. The downside here is QuickBooks requires the most knowledge, effort, and time to get the most of it. If you have a dedicated employee to manage your bookkeeping or you outsource it, QuickBooks will likely give you the most value for your dollar.
Xero is probably the worthiest alternative to QuickBooks on the market. Xero lets you manage invoices and quotes, reconcile bank accounts, track bills and expenses, and pretty much everything else QuickBooks does. However, as of 2018, Xero no longer supports payroll and has pointed its users to integrate with payroll software called Gusto.
YNAB (or You Need a Budget) is an online budgeting app. In YNAB, every dollar you’re projected to earn needs a “job” that you have to assign it to. If there is no job, then you mark it to be saved. YNAB can connect directly to your accounts to pull in balances and other information in real-time to keep your expenses and budgeting accurate, and the app boasts bank-grade (or better) encryption and security. It also provides a lot of tutorials and educational material to support its users.
There are pros and cons to every expense tracking software. You need to figure out which features you need to track your expenses effectively and then decide what you’re willing to spend to get those features. Keep in mind that “spending” here refers to both money (the actual cost of the software) and time (hours spent learning and using the software).
Need extra support?
If running your business, managing employees, doing your own marketing, and tracking your finances is all a bit much for you, consider offloading some of that work to a service professional.
When you entrust a bookkeeper to manage your finances, you don’t need to worry about data entry, budget reporting, or making financial mistakes that might negatively affect your business. You can get peace of mind and focus on your customers and your business growth goals.
Want to make running your business less exhausting? Learn more about accounting technology and how it can streamline your business.