Reviewing Your Business Expenses
As an entrepreneur, understanding your company’s financial health and regularly reviewing your business expenses are keys to success. It’s important to know what expenditures are, why it’s vital to manage your cash flow, and which tools to utilize for tracking. You’ll also want to avoid unnecessary spending. This is especially true early on in your venture. Save where you can, and continue to grow your business as effectively and efficiently as possible.
Let’s begin by looking at what business expenses are and why it’s essential to review them.
Business Expenses Defined
The expenses of a business can be divided into two categories: cost of goods sold (the costs directly related to making your product) and operating expenses (the ongoing, day-to-day expenses of running a business).
Why Review Expenses?
Understanding and managing cash flow is essential as a business owner. You will be able to track how well you are doing. You’ll also be able to make necessary changes and decisions as new situations arise. This helps to ensure your continued growth, development, and success.
Regularly reviewing expenditures and discussing them with your business advisor also will help you maximize your profit margin. In addition, you’ll be able to capitalize on various opportunities, such as tax deductions or take advantage of new tax laws and regulations. Examples of tax-deductible costs include supplies, car mileage, or your home office space, just to name a few!
Finding the Best Tools for the Job
Tracking your business expenditures begins with having an established, separate business bank account. You’ll then need to choose an accounting system that fits your company’s needs. Often, small businesses begin tracking their expenses with Excel spreadsheets. But specialized accounting software provides a more accurate record and is arguably easier to use long term. You also can utilize a receipt scanner and other types of business software to track your receipts and organize your expenditures.
Just a quick note about financial statements, you’ll need to become familiar with these as you begin your bookkeeping process. Financial statements are a company’s financial records. They act as essential communication and act as a crucial informational component for a business.
The four components of financial statements are:
- Balance sheets
- Income statements
- Cash flow statements
- Statements of shareholders’ equity
As your business grows, the quality of these records will become more and more critical, especially if looking to borrow funds for expansion or bring in outside investors.
How Often Should You Track Your Expenses?
Tracking your business expenses is not a one-and-done event! Expenditures should be monitored every month, at an absolute minimum. The more often you review your cash flow, the more you’ll understand how to improve your overall financial health.
Avoiding Unnecessary Costs
Your profit margin will only grow (and your debt will only decrease) if you minimize or avoid unnecessary costs.
How you can save money in your business:
- Limit travel, when possible
- Try to purchase from smaller, local companies for services when less expensive
- Cut back on applications and software that you are not utilizing
- Grow your following and connections organically through networking to cut back on advertising expenditures
- Be efficient with your time
Your business’s financial health is the heartbeat of your overall growth and success. By utilizing the right tracking tools, regularly examining your costs, and avoiding unnecessary spending, you’ll be able to make well-informed decisions and maximize your earnings margin. These practices will allow your business to grow and prosper. If you need help reviewing your expenses or analyzing your business’s health and your tax strategies, call us today! At Health and Taxes, we strive to help make your business strong and prosperous!