Control Company Costs
How to Keep Track of Business Expenses Effectively
Tracking business expenses is an important and often challenging element of running a business.
Business expenses come in multiple types and need to be tracked accurately and in a timely manner. Doing so ensures that leaders have information about spending that can be used to make important, real-time decisions about finances, budgets, and strategic priorities.
Today, businesses are increasingly turning to technology to automate, accelerate, and improve expense management.
The Importance of Accurate Expense Tracking
Tracking business expenses can often seem like a chore, taking you away from other more critical activities.
Having a strong system in place is the best way to keep track of business expenses. It’s empowering and, in today’s competitive business climate, essential.
Why Focus on Tracking Business Expenses
The most critical reason is that without a clear indication of your costs, where they are and the trends associated with them, you’re lacking visibility.
You will not have a clear indication of your company’s financial standing and will have incomplete information when making strategic decisions.
In contrast, with a clearly defined set of expenses close at hand, you can make data-informed decisions about where to spend or cut money. As you look to grow your business, these insights are crucial.
Here are some of the major benefits to accurately tracking business expenses:
- Strong Financial Records. Accurate financial records are important for independent audits of your company. You’ll also need good records if the government audits your company
- Better Financing. If you’re seeking loans from banking institutions or investors, they’ll want to understand your financials. Having accurate records of your expenses is critical when applying for financing
- Financial Clarity. Do you know your cash flow? With accurate expense records, you’ll have transparency and clarity about where your company’s money is going and what needs to be done to strengthen your financial position
- More Accurate Financial Planning. A good system of expense tracking lets you analyse, target, and project future financial positions. Using a system that helps you generate reports and identify trends can help you adjust when needed and plan for your future
- Tax Benefits. Many business expenses are deductible, helping to reduce your taxable business income. By tracking your expenses thoroughly, you can reduce your tax burden and have more cash for operating your business
- Fraud Identification. Financial fraud can disrupt or cripple an organization. With a clear handle on your expenses and consistent reporting, you can more easily spot fraud before it can harm the business
Best Practices for Recording Business Expenses
When you want to effectively track business expenses, follow these best practices.
Open a Business Bank Account
Separating your personal and corporate expenses is critical. Using a business bank account makes it easier to track expenses and pay bills without commingling your finances.
Using an account exclusively for your business finances is important from a liability perspective. If you mix your personal and professional, courts could determine that your personal assets are subject to judgements.
Select the Right Accounting System
Choose accounting software and an expense management system to help keep your books accurate and up to date.
Accounting and expense automation software allows you to quickly enter and pay invoices, reconcile accounts, and produce the reports necessary to show spending and expenses.
Choose the Accounting Method
You have a choice for how you manage your accounting processes. Most small businesses or sole proprietors use a cash accounting business, in which they simply record transactions as they occur.
In the other method, accrual accounting, income is recorded when a product is sold, not when payment is received for the product. Business expenses are recorded similarly, when you receive a bill, not when it’s paid.
Accrual accounting is usually used for growing and larger businesses.
Manage Receipts
Keeping track of receipts is essential for managing your expenses. It allows you to reconcile expenses and confirm amounts paid and to whom. It also allows you to verify expenditures later should an audit arise.
Using expense management tools, including software and apps, allows for easy receipt management. Look for solutions that scan receipts, populate expense reports and ledgers, and store digital copies.
Connect Financial Institutions
Having interconnected business systems drives efficiency and productivity. The same goes with external systems. Connecting your accounting and expense management systems to your financial systems makes it easier to complete transactions from paying bills to issuing employee paychecks.
Establish Performance Measures
Once you’ve determined the technology you’ll be using for your business expense management, you’ll want to identify the right measures to use. Having clear, well-defined key performance indicators (KPIs) lets you measure progress and make course corrections as necessary.
Strategies for Detecting and Preventing Expense Fraud
Expense fraud can take many forms. Knowing how to spot it and prevent it is smart financial strategy,
Expense fraud types include:
- Fake Expenses. These false expenses can include claiming an expense for free meals, seeking reimbursement for items that were not bought or making fake receipts and submitting them for reimbursement
- Double Billing. This practice involves submitting the same receipt or invoice multiple times for reimbursement
- Filing Personal Expenses. An employee may try to dupe the company by filing for reimbursement for personal expenses
- Refund Reimbursement. This practice occurs when an employee buys an item, returns it for a refund and still submits the expense
- Inflated Expenses. Employees may overestimate the costs of an item, claim to have a missing receipt and ask to be reimbursed for the larger amount
How can you prevent fraudulent expenses? Here are some tips:
- Have a well-defined employee expense policy that spells out what can and cannot be expensed
- Review expenses and flag questionable entries
- Scrutinize client meal and gift claims
- Look for time and date discrepancies
- Develop a method for verifying and approving employee expenses
- Use corporate credit cards
- Compare expenses across departments
Technology and Expense Management
Technology is transforming the way companies manage expenses. Business automation tools that use artificial intelligence and machine learning help to accelerate the expense approval and verification processes.
Technology can simplify the way your company operates. SAP Concur is a leading provider of expense management tools.
SAP Concur provides easy-to-use, intuitive solutions for financial management, including expense, invoice, travel, reporting and analytics, and integrations with leading accounting and finance systems.