Welp MagazineA business incurs countless expenses on a regular basis and keeping a track of such expenditures is extremely crucial for managing finances, controlling, useless spending, and maintaining the financial health of the business.
- Future planning
- Budgeting
- Paying financial obligations
- Manage debts
These are some of the many indications of a company’s financial health. Smart management of these factors is directly proportional to the star financial health of your company.
Furthermore, budgeting allows a business to ideally manage payments with vendors/ suppliers and credit utilization/ credit inquiries. These factors not only benefit the financial health but also establish a sound business credit score.
Equifax, Experian, and Transunion are some of the widely known credit bureaus which research businesses ’ credit info and assign credit scores. These credit scores matter because:
- The Equifax credit score ranges from 280 to 850. 670 and above credit-scored businesses are measured as low-risk borrowers.
- Experian credit score ranges from 1-100. The 51-75 range is considered as a range of low to medium risk business borrowers while 76-100 as a range of low-risk business debtors.
Why is Tracking Business Expenditures Significant?
We need to keep a keen eye on business expenditures because it is a major contribution to the financial management of the business. We can’t afford:
- Bankruptcy
- Foreclosure
- Default Notice
- Deprived Brand Image
- Meager Debt Administration
These can be the after-effects of poor business financial management. And we don’t need it, right? Another way round, let’s look into the significance of tracking business outgoings:
|
Prevention from Extra Spending |
|
Optimized Cash Flows |
|
Apt Reimbursements and Gladder Employees |
|
You’re Ready for the Tax Season | Attached Benefits |
|
Scale Down Costs |
|
A Clearer View of Business Revenues |
|
Acts as a Debt Shield |
|
Better Money Management |
|
Saving vs. Spending | Expense Tracking Helps in Assessing your Business Goals |
Prevention from Extra Spending
Allocating budgets specifically can help a business meet business expenses and swell business revenues. In contrast, if a business makes unmeasured expenses regularly – maintaining business revenues would be nearest to impossible.
With the technology advancement, budget tracking applications are easily accessible. This is why there is no excuse to track bills and prevent your company to spend extra and useless!
Moreover, overspending results in high business borrowing, higher interest payments, lower credit scores, and a bad business reputation.
Optimized Cash Flows
Maintaining cash inflows and outflows is crucial because a company can’t survive long-term with inadequate cash reserves. However, optimizing cash flows allows a business to:
- Benefit from the business expanding opportunity. The business has enough to invest in expansionary expenses.
- You can pay the salaries timely. And happy employees are directly proportional to higher business revenues.
- With optimized cash flows only, a business can afford to repay debts in time. Better loan/ credit line governance leads to higher business credit scores!
- It also gives you an idea/ an estimation of what amount of money would be coming in the business earning and what amount will be flowing outward as business expenses.
- Peace of mind is an undeniable and additional benefit. It is extremely significant to run your company with a success mindset, capitalize on opportunities, and treat your customers and employees well.
Apt Reimbursements and Gladder Employees
You are able to reimburse employee expenses (fuel, food, etc.) only if you can afford them. Employee satisfaction has a high negative impact if he/ she has to run after the boss for reimbursements.
Happier employees bring in 21% more profits in the business.
On the other hand, satisfied employees do extra efforts to achieve company goals. Their high morale and positive spirits build brand image and they are loyal to you.
You’re Ready for Tax Season | Attached Benefits
If you effectively observe receipts and cash, you won’t be facing anxiety and hassle on the tax filing days of the year.
Usually, this hassle leads to your prevention of some expense money-backs which if you had categorized earlier, you would have received:
- Some office supplies
- Rent expenses
- Mobile data costs
- Some travel expenses
- Home-office expenses
- Business meetings
Scale Down Costs
Unplanned and inessential costs can be highlighted and avoided conveniently by keeping a check on cash outflows and inflows. Prioritizing expenses and spending on them is always a smart move to spend revenues towards company success.
This mindset and goal, if spread and induced in business teams, help them scale down unnecessary expenditures and promise financial stability of the company.
A Clearer View of Business Revenues
Sometimes, business owners/ teams estimate profits instead of noting and calculating expenses and revenues accurately. This situation may be disadvantageous and manipulating in case of overestimation of finances/ profits.
86% of small businesses earn 100,000 USD in income every year.
If the business is familiar with the actual profit situation and it turns out to be lower from the goals being set – the employees can work harder to strategize and practice plans for business growth.
Acts as a Debt Shield
Noting down expenses helps in reminding the business (teams) that they have got debt payments to repay at promised dates. If due to any reason, the company doesn’t repay the debt on said dates – it leads to a further increase in monetary obligations (e.g. late payment penalty).
Disadvantages of High Debts
- It may affect your credit score.
- High-risk borrowers may take debts at high-interest rates.
- You may face cash flow trials if the borrowed amount is high and you don’t have enough.
- Some lenders might restrict the usage of money thus borrowed. (This is done to avoid risks)
Better Money Management
There are several ways a business can save and manage money. Tracking and controlling expenses is one of them! This may also help to protect your business from financial loss and boost savings which can later be utilized for making profitable investments e.g. business expansion, new product/ service launch, strategic promotional strategy, etc.
Saving vs. Spending | Expense Tracking Helps in Assessing your Business Goals
You have a transparent view of your savings and spending now. This lets you judge your business in comparison to your business goals.
If the savings and spending are as per the plan, you are motivated to maintain and grow the business. However, if they are lower than estimations, it is a boost to make better schemes and stick to them to yield solid results.
How Can We Organize and Monitor Business Expenses Like a Pro?
Whenever you are either initiating a business or running it, you come across some expenditures which are known as business expenses. They can be categorized into 2 kinds:
Following are some practical ways of winning over expense tracking.
1. You Should Have a Separate Business Bank Account | Differentiate Personal and Business Expenses
Even if you are starting, don’t go for burning your personal bank account for both personal and business expenses. Soon you would be stuck and be very lazy to categorize and differentiate these expenses.
However, if you own a separate bank account for business – you are saved from all that hassle and inconvenience of managing business finances.
2. You Should Have a Dedicated Business Credit Card
A dedicated business credit card establishes a credit history. This credit history is extremely beneficial to improve (destroy if poorly managed) your creditworthiness for future financing.
Business credit cards also offer travel and other business rewards.
- Ink Unlimited Credit Card
- American Express Gold Business Card
- The Blue Business Plus Credit Card from American Express
These are some famous business credit card options for 2021.
3. Save Every Receipt
Whether you are paying any bill, making any payment, or buying any equipment, save each and every receipt there and then.
This habit shields you from the trouble and strain of finding bills whenever needed, e.g. tax audit. The expenditure management may also reward you with some tax deductions on taxable income!
4. Digitize Receipts
Digital records are easier to store and discover. Whenever you want to save a receipt, digitize it with a receipt scanner. It helps in:
Hard copies may get misplaced or get fade over time. Nowadays, accounting software is employed in organizations. Some also support mobile devices, so users can take photos and get them injected into accounting software.
5. Accounting Software
This tech helps ease the manual work and better management. QuickBooks Accounting, Xero Accounting, and Wave Accounting are some of the famous and most user-friendly accounting software used today. Some plusses of installing this software are:
- It helps to have a deep insight into data
- Your financial data is on the cloud now. It is now easily accessible to all concerned employees/ departments.
- Financial report making takes lesser time than if attempted manually.
- There are lesser chances of mistakes (if the accurate data is put)
- Documents seem more professional and user-friendly
- A huge time saver!
6. Expense Tracking Mobile Apps
Your mobile app gives you stress-free access to spending details. If you own more than one credit card or savings account, this mobile app helps you keep a track of all at no distance.
You can also plan to cut costs and increase savings. Also, you can send money without being physically present at an ATM. Moreover, some apps also provide financial advice for reducing expenses, improving savings, and maintaining financial stability.
Mint, financial management website, made $811 million revenues in 2021.
63% of mobile users have installed at least 1 money management application.
- Splitwise
- Mint
- Twine
- Clarity
These are some widely trusted financial management apps available to users.
7. Hire a Bookkeeper
If you are short of time or required talent (you don’t have to be the jack of all trades!), you may hire a bookkeeper to do the job for you. Since he/ she is a professional, he/ she would utilize his/ her knowledge and experience to:
- Track expenses
- Communicate issues
- Identify trends
- Make financial reports
8. Review Business Expenditures Routinely
To ensure accurate data management, review business expenditures routinely. This habit will not only keep you in touch with your business number but also can evolve your talents to make better financial decisions for the business.
Budgeting Tips to Maintain Financial Health of Your Business
|
Use the Right Team |
|
|
Don’t Forget the Future |
|
|
Set Realistic Targets |
|
|
Cloud Technology |
|
FAQs
What are the Common Business Expenditures?
Payroll, employee benefits, insurance, operating expenses, and taxes are some common business expenditures.
What is the best way to track expenses?
- Use budgeting apps
- Categorize expenses
- Identify possible adjustments
- Monitor account statements
What should a business budget include?
A business budget is used to plan your monthly and yearly spending. It can help you get an estimate of cash inflows and outflows. You can later compare the estimations with actual results.
A business budget typically includes:
- Estimated revenue
- Cash flow
- Profit
- Variable and fixed costs
What’s the 50 30 20 budget rule?
This budget rule was introduced by Senator Elizabeth Warren to effectively manage finances. 50 30 20 budget rule specify three categories for spending income after deduction of tax:
- 30% on wants
- 20% on savings
- 50% on needs
What is a good credit score for business financing?
640 and above credit score holders are considered good for business financing.
What is business credit?
A business credit rating is a reflection of a company’s trustworthiness to return borrowed money. A high credit rating specifies you as a low-risk borrower and a low credit rating specifies you as a high-risk borrower.
