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Tracking company expenses may seem tedious and time-consuming, but it can be crucial for building long-term financial stability. With a clear understanding of where money is going, businesses could gain better insights into their cash position, profit goals, and future investments. Managing outgoing expenses may prove especially helpful during times of economic uncertainty and rising costs, when managing expenses could mean the difference between thriving and falling behind competitors.
Fortunately, financial technology and digital tools could help simplify and speed up the expense management process. By leveraging these resources alongside smart strategies to organize costs, business owners may save money and time while potentially gaining valuable insights into their financial health. As a result, small businesses may be able to better adapt to changing circumstances, taking control of their spending and paving the way for more sustainable growth and success.
What Are Business Expenses?
Business expenses are the costs that go toward generating revenue and/or maintaining operations. These expenses may include rent, utilities, salaries, equipment, supplies, marketing, and travel. Bookkeepers often divide business expenses into two main categories: direct and indirect.
Direct expenses are tied to specific aspects of producing goods or services, such as raw materials and labor costs.
Indirect expenses are not directly connected to production but can be necessary for running the business. They include expenses such as office supplies and administrative salaries.
By understanding what qualifies as a business expense and what does not, businesses may find they are better equipped to help plan, allocate resources, reduce their costs, and bolster their bottom line.
Business Expense Management Made Simple
Effective expense management may require businesses to establish clear processes for tracking, categorizing, and analyzing costs. Without explicit guidelines, responsibilities, and accountability standards around spending and financial management, businesses may end up significantly over budget – in some cases without realizing when or why they’ve been overspending until it’s too late. But through careful planning and regular assessment, you could help turn financial management into a transparent, fine-tuned process that helps ready your business to increase margins and seize future growth opportunities as they arise.
Even the most successful business's cash flow may fall short from time to time.
This fine-tuning may include first setting up and adhering to a budget. Then, regularly reviewing financial reports to help identify areas where results fell short of expectations. Bookkeeping software and automation may aid the process, but even simple checklists could help make financial management more efficient.
Smarter Ways to Help Save and Manage Business Expenses
From solutions that can help make it easier to work out payment terms with suppliers, to software that predicts cash flow or tracks company expenses, modern businesses may have access to a wide range of financial management strategies tools to help make life easier. The following best practices may not only help improve how businesses manage their expenses but also help reduce them.
1. Automate payments.
Businesses could go beyond mailing checks and logging into vendor portals by using accounting software or online payment platforms to help make automatic payments for regular expenses, such as utilities or rent. These tools may help save time, maintain accurate financial records, and enhance business relationships by reducing the risk of missed or late payments. Many payment platforms also integrate with expense tracking software to automatically process invoices, categorize expenses, and generate financial reports, which can provide real-time insights into cash flow while potentially freeing up staff to focus on more complex problems.
2. Go paperless.
Going paperless is about more than just transitioning bills and receipts from snail mail to email. Today’s expense management tools can allow users to upload pictures of financial documents, which are then scanned, organized, and stored. This may streamline the process of tracking various business expenses – from utilities and rent, to supplier invoices and subscriptions. Once documents are uploaded, cloud-based storage solutions may help enable secure access, helping to facilitate remote collaboration and real-time expense monitoring. Going paperless may also save businesses money on supplies while helping to improve the efficiency, accuracy, and flexibility of controlling company spending.
3. Boost credit facilities.
Credit cards or lines of credit may enable businesses to make necessary purchases or cover unexpected expenses. However, they may come with their own requirements and repayment terms. For example, many creditors require specific criteria. When reviewing credit options, you might want to consider interest rates, payment terms, and any associated fees to find the most cost-effective solution, as well as the impact repayment and interest rates may have on future cash flow. When used responsibly, businesses could use credit to help pay off expenses and build a strong credit history, potentially making the business more attractive to investors and lenders.
If your credit allows, it may also pay to keep an open credit card or two (and spare line of business credit) handy. While you don't necessarily have to borrow against these credit facilities, it may be useful to have the flexibility to draw on these added funds as needed.
4. Renegotiate payment terms.
Renegotiating with suppliers and creditors is about more than lowering costs; it can be about helping to manage when and how payments are made. By extending payment deadlines, even by small amounts, businesses may be able to hold onto their cash for longer periods, which can provide more flexibility when allocating resources and making time-sensitive investments. Additionally, some suppliers may offer discounts for early payments, which can help allow businesses to trade this cash-flow impact for reduced costs. When negotiating payment terms, you may need to explain how the proposed changes could benefit both parties, such as by increasing future order sizes, and be prepared to potentially compromise, rather than make demands that can damage the relationship.
5. Leverage inventory management software.
Investing in better inventory management practices can be a way for businesses to help gain control of their expenses. For example, high inventory carrying costs and procurement bills, not to mention rush delivery costs to replenish sold out goods, could be a major drag on a company’s budget. Inventory software can help businesses optimize stock levels, often alongside tools that use machine learning to analyze sales and market data to forecast demand and predict inventory needs. These insights may help businesses to align their expenses with realistic sales expectations, which can minimize costs without affecting customer orders.
Many of these tools could also automatically track inventory to send alerts or place orders when levels leave a predetermined range, helping to give businesses full, real-time visibility into stock levels. This may help businesses better integrate with suppliers, which could save time and reduce the risk of miscommunications or delayed orders.
6. Embrace fintech tools.
Financial technology (fintech) tools aim to streamline how businesses move money. These tools may include mobile apps for bill payments and employee expense reporting, even when they’re on the go. Online platforms may automate invoice processing and vendor payments, helping to eliminate manual data entry and paper-based processes like expense and reimbursement approvals. Fintech tools may also automatically categorize expenses and flag potential issues for review, such as fraud, errors, or discrepancies – all of which can prove unnecessarily costly if not caught. Additionally, they may offer trend analysis capabilities that helps provide actionable insights into spending patterns and cash flow, empowering businesses to help make more informed financial decisions.
7. Capitalize on cost savings.
While it may be tempting to opt for pay-as-you-go or monthly payment plans for services or subscriptions, vendors may offer significant discounts for annual or bulk purchases. By carefully tracking recurring company expenses and regularly running cost-benefit analyses, businesses could identify areas where paying upfront or in larger quantities might lead to substantial savings. Similarly, businesses could look for vendors that offer volume discounts, early payment incentives, seasonal deals, or other cost-saving promotions. These savings could then be reinvested into the business to help create new products, hire new staff, upgrade assets, or capitalize on other growth initiatives.
However, these opportunities may not work for every business. Buying bulk or taking out long subscriptions might not be worth it if extra stock will go unused, services are only for a short-term project, or the business plans to grow beyond their use in the near future.
8. Use employee credit cards to track and manage purchases.
Sometimes employees need to make purchases on behalf of the company, but managing these expenses can be tricky if using cash or personal cards. Employee credit cards may make it easier to track and control authorized staff expenditures. Here are a few other ways employee cards could help:
Spending limits may be set on each individual employee card to help prevent overspending. These limits may be removed or modified as needed, such as before a company trip or when a big project ends.
Companies can receive instant alerts for purchases outside of approved merchants or spending limits.
Some card issuers offer expense management tools that can create real-time expense reports and provide charts and dashboards to visually track spending.
Employee cards may also offer a host of cost-saving benefits, such as rewards on eligible spending categories.
Expense Management for Business Success
With technology-based strategies and tools in place, managing business expenses doesn’t have to be time-consuming, expensive, or difficult. Developing a targeted money management strategy for your business could potentially save significant cash, both now and in the long-term.
For instance, administrative improvements – including automating payments, creating paperless billing systems, and implementing specialized software – could streamline the more tedious parts of expense management. This may allow staff to focus on more complex strategies, such as collaborating with suppliers, carefully prioritizing bills, and leveraging credit to maximize benefits and improve cash flow. All these strategies could help businesses work towards the same goals: minimizing costs and maximizing profits.
Frequently Asked Questions
What is the best way to organize business expenses?
Every business is different and may require specific accounting tools to address their unique needs. However, modern businesses may opt to organize expenses with accounting software to more effectively track receipts, generate reports and monitor spending.
How to manage expenses for a small business?
To manage expenses for a small business, you might consider creating a realistic budget, tracking all outgoing payments, and regularly reviewing spending reports. During analysis, consider looking for areas where costs can be reduced or where expenses deviated from the budget.
What is the best way to track small-business expenses?
One way to track business expenses is bookkeeping software. These tools integrate with a business’s bank accounts and credit cards to automatically categorize expenses and generate real-time and customizable reports.
How do I keep up with my business expenses?
To keep up with business expenses, you could consider making it a habit to record all expenses and receipts and setting aside time each day, week, or month to review and categorize each expense. This data could help inform a strategic plan to prioritize obligations, improve cash flow, and optimize spending. This could help businesses stay organized, identify trends, and align financial decisions with overall goals.
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