It isn’t the most fun topic about entrepreneurship to talk about, but expense management is essential for any business to survive, thrive, and yes, profit.
If your expenses run away with all of your revenue, after all, there is nothing left to pay your employees, much less you! This is why it is so crucial for a business to pay careful attention to their expenses, taxes and manage those both accordingly.
This article will help you understand why this is so important, and how to take the pain out of this often-painstaking chore of business ownership.
There are a couple of reasons why you should keep track of your expenses and manage them the best you can. First, you will want to take advantage of every possible tax deduction you can, to save yourself money at tax time.
After all, you’re paying bills to be in business, so why should you pay taxes on the money you are using to maintain your business? The IRS has very strict guidelines on what sort of records you need to maintain, and the burden of proof to show that you actually incurred the expenses you are claiming is on you, the taxpaying business owner.
Therefore, you should maintain comprehensive and accurate records of all expenses you incur in the course of business, from your rent or lease payments to your utility payments and even the cost of your office supplies. Most online accounting software packages will provide you with the means to keep track of your expenses.
The second reason to keep track of your expenses is to see where your revenues are going, and determine how you can maximize your net profit. Only through analyzing your expenses can you determine just how expensive it is to keep the doors open, and figure out where you might be able to cut back and save money.
Businesses that fail often do so because they neglected to properly track and manage their expenses, so it is important to keep up with this chore on a monthly, if not weekly or daily, basis.
You can use the tried and true physical ledger method, or you can manage your expenses (and revenues) using online accounting. Remember, you want to take as much of the pain out of this process as possible, so if you have even a passing familiarity with computers, it often makes more sense to use the right software packages, like expense management software, for your accounting and expense management needs. You can also use LivePlan to plan and track your business cash-flow. They make it incredibly easy to do.
Keeping track of your expenses will help you understand where your money is going. You should generate regular expense reports, preferably using expense report software that provides useful charts and graphs of your expenditures, to see just what your business is spending its money on.
Using these tools, you can get a bird’s eye view or a detailed examination of your expenses, and plan accordingly for either restricting spending or just better managing those expenses.
This is a tricky question, since there is no hard and fast answer. You can handle all of the bookkeeping in-house, or you can have a third party accountant manage it for you. What you should be mindful of, though, is the issue of trust: make sure that whoever is managing your expenses can be trusted.
Many business owners have been driven to the brink (or over the brink) of bankruptcy because some untrustworthy person was “cooking the books” to cover up embezzlement or worse.
If you have your accounting done in-house, make sure there are checks and balances in place. Have more than one person looking at the books at all times, and auditing the reports each month or quarter to ensure no “funny business” is going on with your company’s hard-earned money.
On the other hand, if you have an accountant or accounting firm handle this for you, make sure they are trustworthy and properly licensed and certified. It might be wise to have an additional accountant or accounting firm audit the books periodically, just to make sure everything is on the up and up. Your business’s money is its lifeline, so you want to make sure that lifeline is properly cared for.
At tax time, however, you should always bring in a reputable, experienced accountant. This professional can make sure you are properly documenting your expenses, and maximizing the tax deductions your business is due.
Periodic meetings with your tax accountant throughout the year can make the year-end process go much more smoothly, and will help you make sure you are properly documenting your expenses throughout the year.
This is the “disregard at your own risk” portion of the article. What sorts of things can happen if you don’t properly manage your expenses? The absolute worst-case scenario is prison time, if you’ve been claiming tax deductions that aren’t really there. You might also find your business bleeding money to the point that you simply cannot keep the doors open anymore.
Your business might find itself so indebted that bankruptcy is the only viable option left. These are all terrible ways for a business to end, so it is crucial that you properly manage your expenses to avoid these untimely demises of your business.
Managing your business expenses does not have to be painful or painstaking, but it is important to pay careful attention and plan accordingly to this task. Through effective expense management, your business will be leaner and stronger, and you will have a healthier bottom line in the end.
Pay careful heed to these words of advice, and seek the assistance of a financial consultant whenever necessary.
If you pay attention to how your business is spending its money, you will find that your business is more profitable and you will get much more enjoyment out of your business, since you will have the peace of mind of knowing you are building a business that is healthy and wealthy.