How to Track Business Expenses

Expenses are an important feature of every business. Business owners generally look for ways to reduce expenses in order to improve profitability. And while some of these expenses are indispensable, a business can have a number of leakages that can be plugged.

Managing expenses and formulating ways to track them effectively improves the bottom line, especially for companies looking to cut down costs. The article will focus on different types of business expenses and discuss some of the ways in which these expenses can be tracked for better management.

Why is it important to track your business expenses?

A business that keeps a record of the expenses in an effective way can achieve a number of objectives. Some of the key advantages of keeping track of expenses have been listed below:

Enables effective use of funds: Sound expense management ensures that the employees and other stakeholders are not involved in unnecessary expenses. The record ensures that every item is available for review. The chance of fraud is also eliminated in cases where employees are reimbursed or a third party is involved in invoicing a product sold to the company.

Helps in forming an accurate budget: The process of forecasting a budget is improved when the expenses recorded are accurate and complete. The company is, therefore, able to allocate resources and funds based on the records created. The possibility of a shortfall in funds towards a specific activity is also reduced by managing the expenses in an efficient way.

Recording accurate figures in financial statements: Expenses form an important part of the income statement and if wrongly represented, the figures can portray a wrong picture about the business. It is important to manage the records properly. These statements are analyzed by investors and regulators and any discrepancies can reflect poorly on the governance of the company.

In the past, there have been numerous instances in which expenses have been subdued to portray higher profitability. By recording such items effectively, the scope for manipulation is reduced. An accurate financial statement also enables the management to make higher quality decisions.

Prevents discrepancies while computing tax: How an expense is recorded can have an implication on how much tax is paid by the company. Being too aggressive in realizing an expense can reduce the taxable income and this, in turn, would reduce the tax that has to be paid.

However, trying to resort to mechanisms leading to tax evasion can raise an alarm for tax authorities to investigate. Whether a sole proprietorship or a corporation, the nature of the business can differentiate between how tax benefits are realized from certain expenses. So, it is important to categorize these expenses correctly for effective tax computation.

What are the most common business expenses?

Businesses incur different types of expenses during their daily operations. While some of these are necessary to perform the day-to-day tasks, other unforeseen costs are incurred and cannot be avoided. The expenses incurred can be broadly classified as:

Operating costs. These expenses are incurred daily to run the core operations. For a manufacturing company, the purchase of raw materials could be the highest cost that the company has to bear. Other expenses under this category include selling and marketing fees, labor costs, storage costs, and utility bills.

Capital Investments. These are one-time costs that are generally of a large amount. For example, a manufacturing company could require machinery for the production of goods. Unlike an operating cost, the machine does not have to be bought frequently and is considered a capital expenditure. Other capital expenses would include the purchase of land, vehicles, buildings, and equipment.

Financial costs. Most businesses take debt and have to bear interest expenses. This forms a part of the financial cost of the firm. A sound expense management business would also keep track of this and try to reduce it by seeking alternatives to the ones existing.

Other expenses. Sometimes, other expenses can form a significant chunk of a business’s total expenses. In the last decade, regulators have observed fines have been large enough to turn profitable banks into loss-making entities. Likewise, natural disasters can lead to unforeseen expenses that may cause a dent in the bottom line.

While these expenses cannot be avoided for large corporations, keeping track of these can enable these companies to keep a provision for such events. Businesses could also face litigation costs as a part of their total expenses.

What are the ways to track business expenses?

Traditionally, expenses were tracked in simple books and ledgers. Of course, this way has become obsolete due to the availability of various technological solutions. Some of the efficient ways to track business expenses include:

1. Use an Employee expense card. - having expense cards for your employees that you can easily keep track of and have full control over can save you admin time for some complex expense reporting processes like reimbursements. You can set limits and ensure that the transactions are monitored on a real-time basis.
2. Maintain a spreadsheet with the type of expense. Using a spreadsheet like Excel is the simplest way of automating the record-keeping process. Other details like the type of expense and the person involved can also be included to provide a more detailed analysis
3. Keeping track of receipts. Every expense should have a receipt or invoice to back up the necessary costs. These documents can be scanned and stored in electronic form. These receipts help in the reconciliation process and deter any fraudulent activities
4. Maintain a single account. The account statement will automatically record the expenses incurred. While this is a straightforward approach, a bank statement may not provide the necessary analytics for managing costs
5. Invest in an online accounting platform. This is the most reasonable alternative since it offers a host of features that make it easy to track expenses. Users can upload receipts and record the expenses simultaneously. There is also a backup of data provided that can be accessed anytime. Additional notes can supplement any expense recorded

How to track international expenses?

When a business operates at an international level, expense-tracking can be challenging since multiple currencies are involved. An employee making visits to multiple countries could use multi-currency debit cards to use in any country.

Invoicing by vendors may also make it complicated by billing in different currencies. Conversion of currency is an additional cost that the company has to bear and the need for multiple platforms to track these expenses. There are numerous options available to companies that can make the management of international expenses easier. A few of these have been mentioned below:

• Using a Wise employee expense card. will ensure that the employee does not have to use multiple accounts for different regions. Tracing such expenses is much easier with a single account. And with Wise employee expense card, you and your employees can make payments in multiple currencies without the hefty fees.

• Have a company debit card. Instead of claiming reimbursement every time an expense is incurred, it is better to have a company debit card that allows expenditure in multiple currencies. Some platforms allow multiple debit cards from a single account.

• Integrate all international payments of multiple vendors to a single platform. While it is inconvenient to invoice in multiple currencies, a business can consolidate these expenses in a single platform or application for better tracking.

No subscriptions, monthly fees, or confusing price plans - get a Wise expense card!

International expenses can be managed more efficiently using the hassle-free Wise multi-currency expense card. Some of the key benefits are:

1. Get full visibility on cash flow
2. Only let employees see & spend what they need
3. You’re always in the know with automated notifications of spending
4. No mark-up on cross-currency transactions
5. Receipts integrated to your accounting software so you can save some admin time
6. Real-time management of team expenses within the account and helps check what is being paid for. The system also has a smooth approval process that ensures no back and forth while approving a bill.

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