Understanding what your expenses are is the first step in establishing a business that has a solid foundation.
While it’s true that counting your expenses can be a lot less exciting than counting the profits of what your business provides, it still is an important part of how you can fully understand how the inner workings of your business run.
In this article, we will be talking about how you can easily do expense tracking for your business. By the end of the blog, you will be able to grasp some fundamental lessons on how you can reduce expenses in your business.
But before we go ahead with the methods and steps on expense tracking, let’s first understand something important.
Why Should You Track Your Expenses?
Earning revenue is the primary goal of all businesses. Money keeps a business running, and revenue brings that money in, but you also need to take account of the money that comes out.
You don’t want your pocket to have a big hole that ends up dropping all the hard-earned cash that your business earns.
Cash flow problems are a major issue for most businesses, and this issue doesn’t discriminate. Whether it be start-ups or well-established companies in the big leagues, they all are potential victims of cash flow problems that aren’t taken into account.
According to one study, 82% of business failures happen because of poor cash management. That’s a failure that you would want to avoid at all costs, and expense tracking is a step forward in the right direction in avoiding that failure.
Taking the reins of your expenses and tracking them annually, monthly, or even weekly gives you more control and understanding of your cash flow, and this valuable information about how your expenses behave will ultimately help you make the right decisions for your business and avoid falling into a pit of financial problems.
Let’s take a look at the benefits that you get with properly tracking your expenses:
The Benefits of Expense Tracking
- Keep your finances organized
- Ensure your business financial security
- Extend control over your business
- Identify possible cost reductions
- Avoiding debt problems
- Know your business direction
- Forecasting your future business finances
- Know when to expand safely
- Cut back on unprofitable ventures
- Know how profitable your business is
Expense tracking is an endeavour that is worthwhile if you consider a different mindset with how you look at expenses. Looking at expense accounting as a means of increasing your profits rather than simply taking them at face value as mere costs that your business produces will make tracking your expenses a lot more exciting and bearable.
Now that we know why you should track your expenses, let’s move on to how you can track your expenses.
Step 1 – Understand Your Expenses
Before you can truly track your expenses, it’s important first to understand what your expenses are. Tracking numbers on a spreadsheet with the general concept of “business expenses” won’t make things any easier for you.
First, you need to put some context into your expenses and categorize them so you can easily start tracking them from there.
Know The Reasons For Your Expenses
Knowing the root cause and the source of your expenses will guide you on how many holes your business pocket has and which of these holes are the biggest.
Take notes on which areas you are spending the bulk of your money on such as wages, taxes, rent, outsourced services, or maybe even research and development.
Once you can identify the reasons for your expenses, it is then you get a better picture of how your business expenses operate, and just then you can start deciding on what you can do to manage these expenses to better serve your interests now and even in the future.
Recognizing Direct & Indirect Expenses
Direct and Indirect expenses play a vital role in how you can effectively organize your expenses. Knowing the big difference between the two can let you keep a financial history that is both accurate and well-written.
For starters, direct expenses are expenses that directly originate from the product that you make. Basically, it’s the material involved with making the product that you sell.
These expenses directly affect the pricing of your product and it has the potential to be impactful for your customers.
Indirect expenses on the other hand are expenses that don’t mean much for the cost of your product. These usually involve rent, marketing, wages, and even utilities and equipment.
What’s great about indirect expenses is that they are eligible for tax deductions and once you take advantage of this, you’ll find your costs to lower significantly.
Identifying your expenses between these two is important if you want to have a secure future for your business, as a financial history that is long and reliable not only helps along with legal requirements but also with convincing future investors.
Having a financial record with all the numbers involved can be quite a big hand to play for people that are looking to be onboard on a rising star business.
Do you want to learn more about direct and indirect expenses? Take a look at this blog.
Step 2 – Ease Expense Tracking
Now that you can categorize and organize your expenses, the next step is to set up the systems and processes of easily integrating expense tracking into your business.
Then you can start streamlining the processes that your business works on so that things can run smoother than before and everything is a lot easier to control.
Inventory Tracking is Expense Tracking
Your inventory is a core feature of your business. It’s where almost everything that you need to do business takes hold and before you can deliver your products or services to your clients, they all take a little cozy stay in your inventory.
But let’s take a step back, what does all this have to do with expense tracking? Well, almost everything in a business will produce expenses.
Your inventory is one thing. Shipping, production, maintenance, staffing, and general upkeep costs – These are all sourced from your inventory and taking account of how your inventory runs will give you extra control over what expenses you incur unknowingly, and eventually, you can even do some cost-cutting methods which mean fewer expenses and easier expense tracking.
Now, you don’t necessarily have to do these processes and systems on your own. Luckily, there is an easier way to do inventory tracking without having to spend a lot of time and money.
Inventory Management Software such as ProfitBooks can let you easily integrate inventory tracking into your business.
Utilize Inventory Management Strategies
Another technique that you can use to add-on to the benefits of having inventory management software for your business is to follow through with great inventory management strategies.
Using strategies such as contingency planning, regular auditing, and creating backup systems for your inventory data are great ways that you can supplement and maximize the use of inventory management software without having to spend more money on other services.
Utilizing these strategies not only gives you more leeway with your inventory but will also help you track your inventory expenses.
For example, one strategy businesses use is to avoid buying products that can cost them a lot of money if they keep them on their inventory for long periods of time.
If you can use these strategies for your benefit in your business, then you’ll most likely lessen your expenses in the long run.
Take a look at this blog that talks about inventory management techniques to cut your losses.
Streamline Your Buying Process
Your buying process is the last step before your product or service finally gets to your intended client and you can guess how important this is.
Streamlining your business process gives your customers the chance to easily get the orders and products that they want from you.
It is best to give your customers a platform where they can easily put in the specific order and products they want without contacting your staff personally. This generally saves you costs that you otherwise would have to spend on reaching out to each client.
Take a look at this art product store as an example,
When their customers try to order something, they can easily see all of the available options and they are also given the freedom to do custom sizes for the products they want.
All the information they need is given and is all laid out on this single page on their website. Their customers don’t need to interact with anyone at all.
This makes their buying process streamlined, fast, and efficient. This matters for your expense tracking because having all business orders by your clients streamlined gives you an easier time in knowing your expenses on how you deliver your products and services.
It also avoids human errors along the way and avoids customer confusion on the buying process.
Step 3 – Focus on Your Niche
One easy way to track your expenses is to just focus on your niche product or service. You don’t need to be an all-arounder when it comes to selling your goods and services.
Sometimes, all you need to do to lessen your expenses is focus on one product line that you want to keep on going until the end.
Take it as a step to organizing your expenses, making a well-formed product line that is tracked and efficient will give you less worry when it comes to tracking your expenses because you’ve already maximized its potential and you can safely move on to your next business goal.
Product Focusing For Your Business
Being a business that sells a lot of different goods and services will increase your overall expenses as each unique product will have its related costs and this can oftentimes be quite overwhelming variables when it comes to expense tracking.
If your business specializes in producing one certain product and you’re well-known for them then it’s a good idea to first squeeze out all the flaws that you can from that specific product line to maximize profit and minimize expenses.
They both focus on their own specific niche, one focuses on paddleboard products and gears while the other focuses on mannequin products. They both already have a reputation for the products that they provide and they know the product lines that are the most profitable for their business.
Now, if they have maximized their best-selling product lines and have reduced their expenses to a near minimum, they’ll be able to gain a lot more profit, ease their expense tracking, and maybe even be ready to expand on other ventures.
It’s important to first focus on your specialized product line and try to make it as efficient as possible before moving on to anything else. This ensures that you have a line of products that are easily tracked, efficient, and is cost-saving.
Step 4 – Make Simple & Automated Solutions
Most of the time people tend to think that the most expensive solutions are the best solutions but there is not much truth to that. Sometimes, simplicity and convenience is the key to most problems that businesses have.
Simple Solutions is Simple Expense Tracking
If you have a problem and you need to spend thousands just for the solution while exposing yourself to a financial burden, then it’s not much of a solution.
Expensive solutions mostly have expensive upkeep and so if you can minimize your expenses while at the same time keeping things effective, then that’s when you know you’ve found a great workaround and a true solution.
Take this website as an example – MedicalAlertsBuyersGuide
They have all the information displayed on the front page that easily informs their readers about who they are as a company, what services they provide, what clients they want to attract, and how you can get started with availing their services.
Their website doesn’t look fancy nor does it have anything special that would make anyone go “wow!” but think of their customer base. They don’t need anything fancy, they just need something that is easy to navigate and a fairly simple user interface that is straight to the point.
This is because this is what works best for them.
Surely, they don’t spend thousands for upkeep on keeping their site running and functioning. This ultimately lessens their expenses which makes expense tracking all the more bearable.
The amount invested doesn’t always necessarily equate to effectiveness and for you to both easily track your expenses and lessen it, it’s best to figure out the most cost-effective solutions.
Automating Your Business
Automation has made doing business a lot easier – it has helped with sales management, inventory tracking, and employee processes.
But one of the most significant business areas that it has positively impacted would be tracking expenses. A lot of expense management software came out to the market to help people with such processes.
Automated software removes human error out of the mix and is a great way to streamline productivity. If you are a business that highly revolves around using amazon to showcase your products, then have you ever thought about automating and optimizing your listings?
In general, automation can do a great deal of cost-saving solutions for many industries and it can potentially help your business too. According to one research study, intelligent automation results in reducing business costs by 40% up to 75% in the long run.
While oftentimes it can cost quite a bit of an investment to start, it will certainly ease the burden of your expenses and ultimately make expense tracking all the easier if you have fewer expenses to worry about.
Utilize Accounting Software
Accounting heavily revolves around crunching the numbers of your business and it’s pretty much an integral part of any business. If you want to better visualize your cash-flows then accounting can let you do all that.
If you want to be effective with expense tracking and cutting costs at the same time then save yourself the trouble of having to get an entire accounting department when you can automate your accounting easily.
Accounting software such as ProfitBooks gives you the ability to easily have a visualized picture of where your spending goes, how your profit looks, and ultimately stay at the top of your finances.
You don’t need much accounting experience to use most accounting software because that’s the beauty of automation. Anyone can easily grasp the reins with it.
Making good use of accounting software will supplement all the other methods of expense tracking and will give you a lot easier time to track every cost and cent that goes around the flow of your business.
Step 5 – Outsource Your Expenses
If you’re not into automated expense reports or other related software, outsourcing is another great way to track your expenses efficiently. Make smart use of available external services that can help your company grow without needing to dive deep into certain areas in which you need to invest a lot of money.
This makes expense tracking all the easier because you simply have to pay these outsourced companies for the services you need.
You don’t need to go through the actual numbers, hard research, and trial-and-error when it comes to outsourcing. This saves you money, time, and effort that you can better use on other investments.
Reduce Your Costs
Outsourcing generally lessens your costs in needing to invest additional manpower and time. Lessening the need for you to risk yourself in hiring and labour costs.
If you have a business that heavily relies on getting to the top of search engine results but don’t have the necessary background experience to utilize search engine optimization practices or even you don’t have the time to explore ranking software, then consider outsourcing your needs to an SEO company.
SEO companies are a great way to reduce expenses since you don’t have to invest in hiring costs and recruitment campaigns plus you don’t risk yourself having to build everything from the ground up. The same principle applies to all other outsourcing projects that you can consider.
Tracking your expenses through outsourcing isn’t much of a headache as opposed to having to read through every detail that an in-house department would have. Outsourcing is a great way to lessen risk and make things convenient for your business in expense tracking.
Tap Professional Accounting Talent
Outsourcing also provides you the chance to get talented people into your team. If you are having trouble tapping talent in your local area then it can reduce the effectiveness of your business.
This is especially true if you need people in the accounting department to check your finances. Tracking your expenses is important, but it would be nearly impossible to do it right if you don’t have the necessary expertise, software, or manpower to do it.
Oftentimes outsourcing can be a great way to solve this problem as external companies have the experts that you need to solve your problem and these companies usually already have the necessary background knowledge to know what they are doing.
Tracking your expenses is a big part of running a business and while it can be quite a handful to do right, it is worth it in the end with how much of an impact it brings to the success of any future business.
Expense tracking will ensure that your business will have financial security in the long run and close a possible threat to your businesses’ success.