Tracking Your Expenses Quickly – Part II
The first blog post, Tracking Your Expenses Quickly – Part I, discussed how to quickly store your receipts online using an app. Part II, this post, discusses how to track your expenses. This is important for two reasons: First, it answers the questions of “Am I making money?” and if so (or not), “How much?” Second, you will need the numbers for tax compliance and planning. Not only at year-end, but also to keep track during the year to know if you are putting enough money away for your year end tax liability or to make tax planning decisions before the year closes out.
Here are the primary four strategies…
Strategy #1: Dump and Add Later
I worked my way through college with a tree stump removal business, going door-to-door to find new business. For my receipts, I put everything in the proverbial (and actual) shoe box. Then during the tax filing season, I added up my expenses to see how much money I actually made. While not the most efficient (I had estimated tax penalties), it worked since my tax liability was low and the number of transactions was not large.
However, for most business owners, it will cost you money in lost tax planning opportunities AND extra time having to add up the numbers later.
Strategy #2: Excel Spreadsheet
When I graduated college and went into the financial services business, this was how I did it. I would keep my receipts in a pile, then once per month go into Excel and input them. For revenue, I logged into my bank’s online portal and input the incoming numbers. This actually worked since I didn’t have any accounts receivable to manage at the time. Cash flow was very limited and even the small amount of money for a Quickbooks subscription was a deterrent. Even though it was cheap, it was costly in the amount of extra time it took.
Strategy #3: Quickbooks or a similar platform
Quickbooks made life so much simpler, well worth the $15/month I pay for it. I link my business checking account and credit card to it. For each transaction, I log-in once per week and categorize it. I can run a Profit & Loss statement at any time and know exactly where I sit. It also helps me manage my accounts receivable to see who still owes me money and how long it’s been since they were invoiced. If you are going to keep your own books, in my opinion, this is a no brainer. For my tax clients, I help them get their “chart of accounts” set-up and become comfortable using the platform.
Strategy #4: Hire a Bookkeeper
As your business matures, you may find keeping the books to be a dreaded task or it’s simply not getting done. I have found that most successful business owners are really good at running their business, but terrible at keeping the books! Do what you are good at and get paid well to do, outsource the rest. There are different options for bookkeepers, whether it’s an online service or someone local. Feel free to email me if you would like some suggestions.