A number of my clients ask me questions about expense management. While most business owners know that they need to track and document their expenses, they are not sure of how best to do this, or which expenses need to be tracked and why.
Why Track Expenses?
Like most aspects of your bookkeeping services, expense management has two main functions. The first is for you. If you clearly record and analyze all of your business expenses, you’ll end up with a much better sense of how your business is performing, and where you might need to make changes. The second reason is the IRS. No one wants to be unprepared for an audit, and the IRS can question your deductions for up to six years after the fact.
When it comes to business expenses, which receipts should you be saving? Common wisdom has it that you don’t need to save receipts for purchases under $75 dollars. While this is generally true, it’s best to have at least one way to back up even the smallest purchases.
The best way to accomplish this is to have a separate credit card specifically for your business, which is not tied to your personal account. This way, even if you don’t save the receipt for the lattes you purchased for the staff meeting, your credit card statement has that information.
For purchases over $75, however, a credit card statement is not enough. In the event of an audit, the auditor will want to see the credit card statement and the receipt. It’s important to keep both. How do you handle saving receipts? There are now several tools that can help keep you organized.
I’m a big fan of Concur, which not only allows you to easily scan your receipts into the platform, but will also automatically import e-receipts sent to you from airlines, hotels, etc. With its travel-booking app, employers can preapprove certain travel expenses for employees, saving the difficulty that sometimes comes with getting approval for a cost that was already incurred. I’m also a fan of Tallie, which can help you track mileage while you’re driving, and will send employees alerts for expenses yet to be submitted.
By spending a little time to set up a system for tracking your expenses, you will better be able to monitor the financial health of your business and be well prepared for tax time. With the technology we have today, expense tracking and management can become a seamless part of how your business operates.
For more information about saving receipts, please read Jacquelyn Wong’s article on the Why, What and How of Saving Receipts.
For organizational advice, read Ann Willett-Thomas’s blog: Three Tips for Organizing your Financial Records.
And to learn about other business applications, read Lori Kunkel’s blog: Making Use of the Best Business Apps.