If you don’t have an accounting degree or a strong financial background, bookkeeping may seem intimidating. However, if you stop thinking about expense tracking as a complex financial concept and start thinking about it in terms of sorting and organization, it can be much easier.
Your books should never be a mystery to you. As a business owner, you should know what you are spending and where. You can also use your organized ledger to quit a few bad spending habits. For a few ideas, here are 7 financial problems you can resolve just by tracking your expenses.
1. Wasting Money on Extra Fees
As you start to track your expenses, you may be shocked by the amount of money wasted on extra fees. These can range from credit card fees, bank ATM fees, and extra costs accrued through various vendors.
These fees might seem small on their own, but when they are aggregated together and then tracked over the course of the year, you could end up paying a few hundred (or a few thousand) dollars in unnecessary costs.
By tracking your expenses, you can make sure fees don’t make a dent in your income so those profits stay with you.
2. Paying for Unused Services
Do you know how many monthly subscriptions—ala software tools—your business has?
If you’re like most Americans, you likely underestimate how much money goes to these costs each month. According to MarketWatch, the average person estimates that they spend $111.61 on regular subscriptions (from Netflix to grocery delivery) each month. They actually spend close to $237.33.
Look at your monthly recurring expenses and evaluate whether you use these services—and frequently enough to justify their costs. You could save money by trimming this fat.
3. Impulse Buys
Impulse buys are just as common in business as they are in personal spending—the only difference is that business expenses can be much larger. As an individual, your impulse buys might include a candy bar at the grocery store or a nice jacket going into fall. In business, you can spend countless funds on employee appreciation, marketing, new products, and other risky items that might not pay off.
To avoid getting carried away with impulse buys, consider creating an innovation category for your expenses. You can use this budget to take risks or spend money on something impulsively that month. This gives you a limit to guide your “fun” spending.
4. Uncategorized Expenses
Too many expenses can easily get tossed in the “miscellaneous” category, where they don’t provide information on what you spent money on and why.
If your ledger is confusing and the uncategorized expenses keep building up, consider developing new categories that encompass more expenses. You can also develop parent and child categories for each.
For example, the “payroll” parent category could have child categories for standard wages, overtime pay, bonuses, and contractor pay. As your company grows, these can become separate categories of their own.
5. Missing Tax Deductions
If your ledger isn’t perfectly organized, you could be in for a world of hurt during tax season. Not only will you need to calculate your income, but you will also have to sort through hundreds of expenses to see which ones are deductible to help you save.
Along with tracking your expenses, make a note of which categories or costs are tax-deductible. You can then pull them easily for your accountant when it is time to file. Note: tax deductions change frequently, so you may need to review which expenses are deductible before you try to file them.
6. Emotional Spending
Money management is highly emotional, and you are likely to spend money on items you don’t need but want to have. With expense tracking, you can identify patterns in your emotional spending and even budget for them.
For example, if you spend money on various local charities throughout the year, consider setting up a monthly budget for charitable giving. This makes it easier to track deductions and gives you a limit on how much you can spend.
7. Going Over Budget
The cardinal sin of failing to track your expenses is going over budget. You are much more likely to keep spending even when you should stop without a clear warning that you are approaching your limits.
An organized ledger will allow you to always see your financial situation so you can make strategic decisions for your business.
Many of the bad spending habits you can fall into as an individual will carry over into your business. If you turn a blind eye to your expenses, you can overspend or waste money on unnecessary purchases. Try out a software tool like Sunrise, which makes it easy to track and sort your expenses. You can eliminate unwanted costs and grow your company’s profitability.