Learning how to track business expenses is an important part of running any business. Whether you’re a small, medium, or large business owner; finance manager; construction contractor; or field service provider, knowing where your money is going helps you make smarter decisions.
A 2024 report from the Association of Certified Fraud Examiners (ACFE) stated that expense reimbursement schemes result in an average loss of $251,000 for companies and go undetected for an average of eighteen months.
And that doesn’t include the small leaks that can take a bite out of your bottom line, such as unrecorded expenditures, lost receipts, and human error.
Overall, mismanaging business expense tracking can have a wide range of negative impacts on a business, from direct financial losses to increased audit risk to a decline in employee morale.
This guide will show you how to track your expenses the right way. We’ll also cover some of the best practices that can help you monitor all spending, from big purchases to small everyday costs.
By the end, you’ll see why organization and modern software, like Coast, can make a huge difference in managing your business finances and helping you take control of your money.
Key Takeaways
- Tracking business expenses helps reduce tax burden, gives you a clear understanding of cash flow and profitability, opens the door to accurate budgeting and financial forecasting, and simplifies the financial review process.
- Use a software solution (like Coast) that gives you access to automation that eliminates manual data entry, prevents lost receipts, and makes reporting and tax prep much easier.
- Best practices for smart expense tracking include categorizing everything, reviewing spending regularly, and transitioning to digital recordkeeping. These practices can help reduce your risk of IRS audits and increase compliance with all rules and regulations.
Why You Need To Track Business Expenses
Reduce Business Tax Burden
Tracking expenses helps you reduce your business tax burden. At tax times, you can deduct business costs (like office supplies, travel, and software) to pay less in taxes. If you don’t track these things, it’s like leaving money on the table and you could miss out on big savings.
Gain A Clear Understanding Of Cash Flow And Profitability
Tracking every dollar shows exactly where your money goes. This helps you determine if you’re making a profit and spot overspending. It’s the only way to really know the health of your business.
Achieve Accurate Budgeting And Financial Forecasting
A survey by Vision One Financial found that 73% of businesses that switched from monthly to weekly forecasting reported improved accuracy in cash position predictions. That’s huge!
When you know what you’ve spent in the past, you can create a smarter budget for the future. This lets you plan for big purchases, manage your savings, and predict how much money you’ll have down the road.
Simplify Financial Reviews
Tracking business expenses also simplifies financial reviews. When you meet with your accountant or a lender, having clear, organized records makes everything easier.
How To Track Business Expenses The Right Way
For a long time, businesses used spreadsheets, paper, and filing cabinets to track expenses. These old-school methods can work, but they have major downsides.
Manually entering data is time-consuming, and you’re more likely to make mistakes. Plus, all that paper is bulky, hard to organize, and can get lost easily without a backup.
That’s why modern businesses are switching to expense management software and discovering that it’s a game-changer. In fact, businesses are seeing a 70% increase in productivity after switching to a software-based expense management system.
This increase in productivity is achieved thanks to automation that does much of the work for you and your employees. For example, advanced systems let your employee submit receipts online right from the point of sale and the software automatically captures the details.
Some even give you real-time visibility of your spending and the ability to create reports with just a few clicks.
Coast is an ideal solution for this. It solves the biggest headaches of expense tracking.
With Coast, you don’t have to deal with manual data entry or lost receipts. Just snap a photo, and the information is saved and categorized. This gives you clarity on your spending and makes tax time a breeze because all your records are in one place, ready for reporting.
Best Practices For Smart Expense Tracking
Categorize Everything
When you’re tracking business expenses, don’t just list all the purchases. Group everything into clear categories. And we’re talking everything. From the big, expensive stuff to the few bucks spent on tips while traveling.
Categorizing everything makes it much easier to see how your spending adds up and where your money is going.
Job Codes
An important component of the categorization process is using job codes to further identify and organize expenses so you can get as accurate a picture of spending as possible. Job codes, also called cost codes, are labels for everything you spend.
The most widely used system in the United States is the Construction Specifications Institute (CSI) MasterFormat, which organizes construction tasks into a series of numbered divisions, such as:
- Division 03: Concrete
- Division 04: Masonry
- Division 05: Metals
- Division 06: Wood, Plastics, and Composites
- Division 07: Thermal and Moisture Protection
- Division 08: Openings (Doors and Windows)
- Division 09: Finishes (e.g., drywall, paint, flooring)
- Division 22: Plumbing
- Division 23: Heating, Ventilating, and Air Conditioning (HVAC)
- Division 26: Electrical
Keep in mind that the CSI MasterFormat is one option. There are others you can choose from. What’s more, you may choose to use a system of codes as they are or create a system that fits your business better. Find what works for you and stick with it.
Review Spending Regularly
Don’t let a month go by without checking your expenses. Examine your spending weekly or every other week so you can catch any issues early. That way, spending doesn’t get out of control.
If you’re a small business owner with variable spend, take a more proactive approach and review your expenses every few days, if not daily, to keep your accounting under control and your spending on budget.
Transition To Digital Recordkeeping
Stop keeping a file of paper receipts. Digitize all proofs of purchase by opting for electronic receipts, scanning paper copies into your computer, or taking a photo of them on your mobile device.
With a comprehensive organization system, your digital files will be easy to search and locate quickly.
During your regular reviews, back up everything to an external hard drive or cloud service. This ensures you’ll never lose your important financial records.
Take Control Of Your Finances With Coast
Even with better tools and processes, expense tracking can still feel like a constant chore. But there’s a simpler way.
Coast helps you automate your expense tracking:
- Issue cards to all your employees with custom limits by employee, category, or merchant
- Capture receipts instantly by phone, with automatic reminders so finance won’t need to chase down receipts
- Speed up your accounting process, with automatic transaction coding and integrations with QuickBooks, NetSuite and Sage Intacct
- Get real-time visibility into company spend with detailed transaction reporting and filters.
For more ways Coast can help you take control of your spending, visit CoastPay.com.
Frequently Asked Questions [FAQs]
What are common types of business expenses?
Business expenses are costs that are “ordinary and necessary” for running your business. While they vary by industry, common categories include office supplies, rent and utilities, travel and entertainment, fuel, maintenance, insurance, salaries, wages, and legal fees.
To make sure you’re tracking the right business expenses for your industry, talk to an accountant or tax professional. They can make sure you’re not missing anything and are complying with all local, state, federal, and industry-specific guidelines.
How can I avoid common mistakes when tracking business expenses?
One of the best things you can do to avoid common mistakes when it comes to business expenses is to track things in real time.
Don’t wait until the end of the month or, worse, the end of the year. Track business expenses as they occur with a software solution like Coast. Doing so will help you avoid losing receipts or forgetting details that could become important down the road.
It’s also important to create expense categories in your bookkeeping and to be as consistent as possible assigning purchases to those categories. If you have questions about what is and what isn’t deductible, consult with a tax professional.
Finally, don’t ignore the small expenses. Yes, they may not seem like much, but they add up quickly and can have a significant impact on your bottom line.
Is there an alternative to employee expense reimbursement?
The simplest alternative to employee expense reimbursement is the company credit card (a.k.a. P-cards or corporate cards).
With this option in place, your employees can purchase business-related goods and services and the bill will come directly to you. No more time wasted trudging through the employee reimbursement process.
Advanced options, like Coast, even come with customizable, automated spend rules that can help you control where employees spend money as well as tools that simplify how you collect information and streamline the way you reconcile accounts at the end of the month.
What’s the best way to track fleet and job-specific expenses?
The best way to track fleet and job-specific expenses is with a credit card and software solution like Coast.
With Coast, you can:
Create Spending Policies: Establish a comprehensive, easy-to-understand expense policy that outlines all aspects of potential spending, including allowable expenses, spending limits, required documentation, and approval workflows (for both purchasing and reimbursement).
Bring Spending Under One Platform: Whether you operate off of an employee reimbursement program or issue company credit cards, it’s best to keep all spending on one platform. This makes it easier to track, manage, and organize expenses throughout the business.
Automate Expense Management: Automation takes much of the manual labor out of expense management and streamlines tracking, reporting, and payment, minimizes manual errors, and speeds up processes.
Implement Real-time Tracking And Reporting: The software provides real-time visibility into spending, allowing for immediate adjustments and better control.
