Spending money as a business owner—heck, as anyone—is easy. If you’re not careful, it can easily become a mindless task, with little thought put into it. Learning to thoughtfully manage expenses, on the other hand, is a whole different story.
As a truly small business owner, your duty, aside from learning the ins and outs of invoicing, is to optimize how you manage (and track) business-related expenses. As the second piece of our 3-part series (see Part 1: Invoicing: How Truly Small Businesses can Leverage Kashoo) you’ll learn everything you need to know about how to manage expenses as a small business owner!
Topics of this guide include:
- The importance of tracking and managing expenses
- How to track and manage expenses (step-by-step guide)
- Actionable ways you can leverage Kashoo to manage expenses
- Conclusion: become an expense management pro!
1. The importance of tracking and managing expenses
So many business owners focus on generating revenue—which is key. However, the majority of business owners lack the internal systems and processes needed to manage expenses.
Effectively tracking your business expenses is more than just administration. You can reap so many benefits from it, such as:
- Keeping your business solvent
- Improving your decision-making process for long-term planning
- Capitalizing on tax deductions that you’re eligible for
- Better preparing for tax season
- Identifying daily markers to see if you’re over (or under) your monthly budget
- Becoming more financially aware
2. How to track and manage expenses (step-by-step guide)
It’s easy to talk about how important tracking and managing business expenses are but executing is much harder. Don’t worry though—we’ve listed out the steps you need to take to get started! Although step 1 should be done first, the latter steps can be completed in no chronological order.
Step 1: Divide your business and personal bank accounts
Scheduling an appointment with your bank to organize your business bank accounts may seem like a hassle.
But it really isn’t.
Setting up these accounts before the cash starts flowing in can minimize plenty of headaches down the road (think tax deductions and tax returns!).
Take the time now to isolate your business and personal bank accounts to avoid getting mixed up with your personal spending. It’ll also make figuring out your deductions and filing your tax return that much easier.
Be sure to open:
- A business chequing account
- A business savings account
- A business credit card
💵 Why avoid cash when you manage expenses?
“Using cash for expenses seems to be the absolute death-nail for clients trying to keep good bookkeeping records and documentation for an audit,” says Entrepreneur, who recommends avoiding using cash, when possible.
Not only is cash too easy to spend, but it’s also difficult to track. It only has a receipt as a backup, unlike a digital transaction which has a record in your bank statement and a receipt. Overall, it’s better for your business, better at tax time, and definitely better if you get audited to use debit and credit for purchases.
Step 2: Save your receipts
For the self-employed or small business owners, setting up a trusted, consistent approach to storing receipts is a big part of how you properly manage expenses. Whether it’s tracking your rent, utility, meals, or gas receipts (and more), saving them will help you separate taxable and nontaxable income and identify your eligible deductions. It’s particularly helpful if and when the IRS or CRA conducts an audit—you’ll have foul-proof documents to back up your claim.
There are two ways you can store your receipts:
🧾 Storing paper receipts
Keeping your documents organized is key if this is the route you want to take. Ultimately, it doesn’t matter where you store your paper receipts. It’s your commitment to filing them each day in a system that you trust. Find an approach that works for you, and stick with it!
When you’re outside…
- Have a Physical Container Handy. A separate pouch, envelope, or wallet works fine for storing your business paper receipts when you’re on-the-go.
When you get home…
- File Folders are Your Best Friend. Store your receipts when you’re out, but don’t just keep them there to collect dust! Use file folders labeled by month or category to store your receipts when you get home. A filing cabinet or an accordion folder also works.
💻 Digital receipts
If you’re naturally tech-savvy and don’t like tracking paper copies, you’re in luck. You have many accounting apps at your disposal!
When you’re outside or when you’re at home…
- Cloud Accounting Software to the Rescue. Kashoo’s accounting app, TrulySmall Accounting, makes it easy for you to manage the entire accounting process, and especially expense management! As soon as you connect your business bank account to TS Accounting (refer to Step 1), all expenses made digitally will automatically transfer over to your Inbox to review and categorize. The best part? All the accounts used for expense categorization are already built into Kashoo so that you can figure out tax deductions seamlessly.
Step 3: Identify tax deductions
You might be thinking: why do we go to such an extent to store and track receipts?
That’s because it’s all part of managing expenses. Tax credits are reductions in your tax bill. As a small business owner, if you qualify for a tax credit, it’ll be subtracted from the taxes you ultimately owe to the IRS or CRA.
There is a range of business tax deductions that you can claim as a business owner. Some are more obvious while others are less known, like Private Health Services Plan (PHSP) Premiums.
Step 4: Automate with technology
Finally, where it makes sense, you should look into automation to manage expenses for your business. Modern technology like cloud accounting software leverages features like automatic reconciliation, receipt scanning and matching, expense categorization, and expense reports that are built into the software. It not only saves time and makes accounting easy, but it almost makes it somewhat of a fun task! (Trust us, it’s possible)
In the next section, you’ll see how TS Accounting automates expense management, paired with intuitive UI.
3. Actionable ways you can leverage TS Accounting to manage expenses
TS Accounting Feature #1: A familiar inbox, but better
The majority of accounting software offers a “do-it-yourself” workspace. But often, this approach still takes too much time.
What if we told you there was a tool where you can take a “hands-off” approach instead? TS Accounting has Auto-Post built-in, which allows you to have all your business transactions categorized, posted, and have financial reports ready for you to export in 5 minutes or less. We’re not even exaggerating a little bit!
With technology like Auto-Post, all you have to do is connect your bank account, let us handle the hard work, and just make changes on-the-fly if you need! Once you make a change to a categorized transaction, we’ll even ask you whether this is a one-time change or whether our system should remember it for all future transactions.
This means TS Accounting will actually learn from your choices so that you can personalize the service for your business needs!
TS Accounting Feature #2: Receipt scanning
If you choose the route of storing digital receipts, then you have access to TS Accounting’s receipt scanning feature with our software! By leveraging machine learning, TS Accounting uses optical character recognition (OCR) for receipt scanning, as well as matching for receipts. Simply drop an image of a receipt in the Inbox and TS Accounting will automatically match it to a transaction.
🟢 You’ll see a green button labeled “Match Found”, and you just have to click confirm!
TS Accounting Feature #3: Visual dashboard to see what matters
“You can’t manage what you don’t measure.” — Peter Drucker, also known as the father of Management Thinking.
To help you make decisions, view key financial information like:
💵 Top Expense
The ability to view your business’ top expenses informs you where you are spending the majority of your cash. Use this information to make changes to your spending.
💵 Income vs. Expenses
View your income and expenses through a visual bar graph to see where they sit month-to-month and how they compare next to each other. From Kashoo’s dashboard, you can also filter by year on the top right corner.
4. Conclusion: become an expense management pro!
Like invoicing, knowing how to manage expenses is another critical component of running the successful backend of your business.
Understanding the importance of managing expenses is one part of this process, but so are the steps (and tools) you need to do it like a pro. Hopefully, by the end of this, you’ll fully grasp your next steps to managing all of your business expenses, as well as TS Accounting’s top features that make this laborious process that much easier for you.
Interested in learning more, or jumping right in? Try our free trial today to see how you can implement all the above actions and tips to improve how you manage expenses.