There are two considerations for tracking and documenting business related expenses – keeping receipts and logging them.
In regards to keeping receipts, you’ll likely face two typical scenarios. The first is something like you’re driving around for your business and you stop to fuel up, you pay for gas, collect your receipt and rush to your next appointment. The receipt gets stuffed in your wallet, along with a zillion other receipts, and eventually, is thrown out with the other non-business related expenses. This receipt is actually worth money to you. It is the equivalent of throwing cash from your wallet into the garbage. And, if you consider this happening repeatedly in the course of one year, can be worth a lot of money.
Keep Your Original Receipts:
I would suggest two boxes/envelopes in two places. One in your car (the glove box is a good idea), and one at home or your office. That way, after you fuel up, you can ditch the receipt in the glove box, or at home/work when you unload your wallet there. Another scenario involves online purchasing. You purchase something online (a gift for a client as an example) and the online receipt lands in your inbox. I suggest creating a file for these online receipts and filing them right after your purchase. Another simple habit can include flagging the message so you can file it when you have time.
Some way, somehow, you need a consistent system for storing these receipts.
Use an App to Track These Expenses:
In addition to keeping the receipt, it’s imperative that you track your expenses. You can use an app that you manually log expenses or one that you download your transactions from. I would choose to manually log expenses if I needed to keep business and personal expenses separate, especially if I use the same bank accounts for both purposes. These apps can help categorize the expenses based on type (fees, supplies, entertainment, etc) and can be exported to an excel spreadsheet.
If you have a debit/credit card you use exclusively for your business expenses, you can easily download the expenses from your banking institution. The log of expenses can be really helpful to your accountant, and also imperative to analyzing your costs and expenses from year to year.
While the intent of this post isn’t the importance of budgeting, I will spend time breaking down the important of personal and business budgeting, and why I think it’s foundational to the operation of any successful business.
In part three, we discuss what these expenses do for you and your overall net income.