It’s not the most exciting part of running a business, but knowing how to manage expenses is critical for your company’s financial health. But what’s the best way to manage expenses? Read on to find out.
Why is it important to manage expenses effectively?
First off, let’s explore why it’s essential to know how to keep track of receipts for business? By keeping a closer eye on the amount that you’re spending, you can begin to reduce unnecessary expenses and increase your company’s profitability. In other words, it’s the best way to ensure that you’re not wasting money on things that aren’t critical to the success of your business.
There’s also a regulatory aspect. If you don’t have a clear picture of your business’s expenses, you won’t be able to claim for them on your self-assessment tax return form, which means that your tax bill may end up being higher than it needs to be. Furthermore, if the HMRC decides to conduct an audit, knowing how to track expenses for small business can help you prove you’re keeping adequate records and avoid a fine.
So, what’s the best way to keep track of business receipts and expenses. We’ve compiled four excellent tips that can help you manage expenses more effectively:
1) Open a dedicated business bank account
First and foremost, it’s important to open a dedicated bank account for your business. Business bank accounts are mandatory for limited companies, although as a sole trader, they’re not legally required. In either case, the benefits of a dedicated business bank account make it a must-have. Not only will a business bank account make it easier to handle your accounting, but it will ensure that you’re able to keep track of your expenses far more effectively. It’s also a good idea to have a separate credit card for business purchases.
2) Connect your business bank account to your accounting software
Next step – make sure that your bank account is connected to your accounting software. By doing this, you can import transactions seamlessly and automatically, which makes it far easier to track your expenses. Put simply, the use of accounting software drastically reduces the potential for human error. There’s no chance that you’ll forget a transaction or misdate an expense because the software handles the data for you. All you’ll need to do is categorise your transactions before linking them to the appropriate receipt, minimising the amount of time you’ll have to spend on this area of the business.
3) Digitise your receipts
Digitising your receipts is a crucial element of learning how to keep track of receipts for a business. Physical receipts leave too much room for error. You might misplace a receipt or find that you’re unable to work out which receipt goes with which expense. Besides which, ink fades and paper crumples, making the task of tracking your receipts even more difficult. Digitally capturing/filing your receipts on an ad hoc basis (using a receipt scanner) is the best way to keep track of business receipts. Plus, if you ever get audited by HMRC, you’ll be able to provide them with a digital record.
4) Review your business expenses on a regular basis
Finally, it’s important to review the way you manage expenses regularly. This can help you make sure that your transactions are correctly categorised and that your reporting is always accurate. Then, if you notice that you’re spending too much money on certain items, you can adjust and bring your expenses more in line with your financial earnings.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.