Man using calculator to track expenses

Small Business Guide to Tracking Your Expenses Like a Boss

10+ min read • Jul 24, 2020 • Jesse Sumrak

Do you have the goal of building a profitable small business? You’re not alone. Not many entrepreneurs dream of starting a business that never turns a profit. When you think of making money, you probably think of sales and revenue—you know exactly how much cash you made, where it came from, and when you made it. 

But how often do you think about expenses?

A profitable business is one that makes more cash than it burns—revenue is only one part of the equation. Thus, it’s nearly impossible to make a profit if you don’t know how much you’re spending. That’s why it’s incredibly important to track your expenses with the same level of detail (if not more) as you would your revenue.

However, accurately tracking your expenses is easier said than done. Without proper systems and practices in place, you’re bound to make costly mistakes:

  • Miss receipts
  • Lose billable hours
  • Forfeit valuable tax deductions
  • Produce inaccurate financial reports
  • Create incorrect cash flow forecasts and budgets

These consequences can be devastating to your small business—fortunately, they’re all avoidable. The right software and a little know-how can help you bypass most bookkeeping errors, helping you save cash and keep your business on the right track.

This guide will walk you through everything you need to know to track your expenses like a boss. With these expense-tracking fundamentals under your belt, you’ll understand your finances better than ever before—and you’ll be one step closer to establishing the profitable business you’ve always dreamed of building.

1. Open a Business Bank Account

Opening a business bank account

Before you do anything else, open a business bank account. It’s important to separate your personal and business finances as soon as possible. Having a dedicated business bank account makes it easy to track your income and expenses in one organized place. Come tax season, you won’t have to dig through your statements and transactions to determine which expense was for your groceries and which was for your new office desk.

While you’re at it, apply for a business credit card. This card, in addition to a business-specific bank account, will help you keep your expenses separated. Plus, you’ll enjoy a few other business benefits, too:

  • 0% introductory APR for the first 12 months with most cards
  • Higher credit limits to make expensive purchases or cover your cash flow during rough months
  • Cashback rewards, points, and other great perks
  • Improved credit score to qualify for bigger loans later

With a business bank account open and a business credit card in your back pocket, you’re ready to take full advantage of cloud bookkeeping software like Lendio’s software.

2. Choose the Right Bookkeeping Software

Tracking your expenses starts with capitalizing on the right solution. Sure, you can manually record each transaction in a notebook or Excel, but that’s a massive waste of time (especially when you have a handful of expenses every day and week).

Fortunately, there’s a better way.

Thanks to technology, bookkeeping doesn’t have to be agonizing and monotonous. Ditch the books and spreadsheets and adopt cloud bookkeeping software. The right solution empowers you to trade in your stereotypical 9-pound ledger for easy-to-use software that does all the entering, categorizing, and report generating for you.

Lendio’s software provides all the features you need to stay on top of your bookkeeping. Oh, and it’s free. Here’s a glimpse of what bookkeeping tech can do for your business:

  • Track expenses: Link your bank account and credit cards and presto—Lendio’s software will import and categorize all your expenses and income.
  • Customized invoices: Create personalized invoices and set up payment schedules to ensure you always get paid on time.
  • Financial reports: Generate financial reports like your tax summary, profit and loss statement, and balance sheet with just a click, click, click.
  • Tax preparation: Know your tax burden and how much money you owe well in advance.

Plus, cloud accounting software lets you access and edit your business data on the go. Whether you’re traveling to a conference or taking a client out to dinner, you can check your finances and add your receipts from the comfort of your phone. 

Are expenses already running high this month? Maybe nudge your client toward the chicken parmesan and away from the lobster tail.

Managing your cash flow, sending invoices, and tracking expenses has never been easier. Get started with Lendio

3. Record All Your Expenses

Check your receipts and record expenses

Make sure to record all your expenses—big and small. Whether you use cash, card, or your bank account, do your due diligence to ensure these transactions are accounted for.

If you use cash, properly store your receipts to guarantee no expense gets lost. Better yet, promptly scan it (most bookkeeping software can do that) so you don’t have to worry about losing the paper slip in your bag or pocket.

Small everyday expenses can add up over time, but you won’t know unless you track them. Record the office coffee bill, paper restocks, software subscriptions, and more so that you always have a complete, up-to-date view of your financial situation.

There are plenty of small business tax deductions you can capitalize on, and every penny counts. Tracking all your expenses will ensure you lower your overall tax burden and don’t miss out on any savings.

4. Categorize Each Expense

Where you’re spending your money is just as important as how much you’re spending. Properly categorizing each expense will give you insight into how your business is spending cash, and that information will help you with important decision-making.

While most bookkeeping software will automatically categorize your expenses, you may want to edit, add, or remove different categories. For example, while “maintenance and repairs” may sum up one business’s expenses, another might need more granular categories like “oil change,” “parts replaced,” or “cleaning.”

At the end of the month, generate a profit and loss report and cash flow statement to see where all your money is going. If you’ve created the right buckets and categorized each expense appropriately, these reports will help you quickly identify trends and red flags.

5. Remember Your Tax Obligations

Remember your tax obligations

Whether you sell online or through a brick-and-mortar store, your customers may need to pay sales tax relative to the state they live in. Tax laws differ significantly between states, so you’ll need to check and see if the products and services you provide are subject to sales taxes. And if you operate online, laws get even trickier. 

While your customers are the ones that bear the legal burden for paying a sales tax, it’s your business’s responsibility to collect and pay it to the right states or municipality.

A cloud bookkeeping software solution like Lendio’s software makes it easy to add sales tax to your invoices. You can include different state sales taxes, and these will be added to your invoices based on your customers’ locations. By collecting the right taxes up front, you’ll avoid any unnecessary tax burdens and keep the government off your back.

If your business will owe more than $1,000 in taxes this year, you need to pay estimated quarterly taxes. Lendio’s nifty feature, Tax Assist, helps you estimate how much tax you’ll owe each quarter based on your income and expenses. Failing to make your payment on time could result in IRS penalties, so make sure you stay on top of your tax obligations.

Tax obligations aren’t always clear-cut, though, and that’s why Tax Assist comes in handy. Tax Assist’s tax estimator responds in real time to your income and expenses—when your income goes up, your estimated tax burden increases, too. If you anticipate a major shift in your income or expenses in the coming months, make sure you take that into account when budgeting for your quarterly taxes—you may need to save money in advance to make your payments on time.

6. Make Tracking a Habit

Think of your business books like your kitchen. If you spend just 15 minutes a day cleaning your dishes and wiping off the counters, you’ll never have to face a gross, revolting mess at the end of the week. And if you spend just a little bit of time bookkeeping each day, you’ll never experience an accounting scramble come tax season.

Dedicate some time at the end of the day to sit down with your finances. It doesn’t have to be hours—just take a little bit of time to account for the day’s expenses. Doing this each day will ensure you avoid any unpleasant surprises at the end of the month.

7. Hire a Bookkeeper

Hire a bookkeeper

In your business’s early stages, it may be easy to track your income and expenses here and there. However, as you scale, the amount of time required to keep your books up-to-date scales, too. Whether you’re low on time or would prefer professional help, a bookkeeper may be just what you need.

A professional bookkeeper can help reconcile your books and match transactions. Plus, they know the ins and outs of bookkeeping best practices, so they can offer the expertise you need to streamline your processes and avoid cash flow issues.

When it comes to choosing a bookkeeper, you have a few options:

  • Freelance bookkeeper: Find a qualified freelance bookkeeper on Upwork, Indeed, or Freelancer. Rates will typically range from $15-50 per hour, and you get to work one-on-one with whoever you choose.
  • Bookkeeping firm: Work with a team of bookkeepers rather than just one. Firms usually cost a bit more, but they offer a range of experiences, larger teams, and guaranteed coverage.
  • Software bookkeepers: Hire a bookkeeper who intimately knows the technology you’re using. For example, Lendio offers low-cost monthly bookkeeping services on top of its free software.

Remember, bookkeepers and accountants aren’t the same. If you’re looking for someone to help track and record all your income and expenses, then you’re better off with a bookkeeper. However, if you want legal advice, tax help, or someone to prepare audited financial statements, you’ll need a Certified Public Accountant (CPA).

8. Regularly Review Your Financial Reports

Tracking and recording all your business expenses won’t do you much good if you don’t put that data to use. Make it a habit to regularly generate and review your financial reports. At the end of each day, week, and month, make sure the money in your bank account matches your receipts. Monitoring your transactions daily will help you catch errors, unexpected fees, and fraud before it’s too late.

Accurate bookkeeping will help you identify big-picture insights. Generate your 3 most important financial reports (profit and loss statement, cash flow statement, balance sheet) each month to discover more about your business’s health.

Up-to-date expense tracking will help when you’re preparing your cash flow forecasts. You’ll have all the data you need to create reliable estimates, ensuring you don’t get hit by any unnecessary surprises. These forecasts will help you leverage your existing capital to the fullest without risking dangerous amounts of debt and overspending.

9. Evolve Your Tracking Methods

Person tracking expenses

When you’re first starting out, it’s simple to use cash accounting to record your transactions when they occur. For example, when you make or receive a payment, you record that transaction when it enters or leaves the bank account. However, as your business grows, you’ll need more in-depth knowledge about your assets and obligations. 

Accrual accounting is a more sophisticated accounting method that records your expenses when they’re incurred, not necessarily when you pay them. For example, accrual accounting would record an expense when you receive a bill—not on the day you make the payment.

This more detailed bookkeeping method ensures you’re up-to-date on your income and expenses. You’ll know you can’t spend cash that’s already been set aside for an incurred expense, even if you haven’t paid the bills yet. Accrual accounting takes more time, but it’ll help you avoid cash flow issues.

10. Consider Additional Expense-Tracking Apps

Depending on your industry and the types of goods and services you offer, you may need extra expense-tracking software to streamline your bookkeeping. For example, if your business bills clients by the hour, then you’ll want a tool that makes it seamless to track and bill your clients. Or if you and your employees do a lot of business travel, you’ll need a tool that can track expenses, mileage, and more.

  • Harvest: Time is money, so make sure your billable time is compensated. Harvest tracks your time and expenses so you get insights into exactly how much your time is worth.
  • Expensify: If your employees do a lot of business travel on the company’s dollar, a tool like Expensify can help you account for all their transactions. With approval processes and receipt capture, you can avoid fraud and make sure every spent dollar is recorded.
  • Mileage Log+: Mileage Log+ tracks gas mileage, making it simple and easy to reimburse your employees. With mileage logs and IRS rates, expense reimbursement for travel has never been this easy.

If you do choose to add extra apps to do more meticulous expense tracking, make sure you maintain a single source of truth. 

Reap the Rewards of Meticulous Tracking

Happy small business owner

Tracking all your business expenses is a lot of hard work—but it’s well worth the cost. With accurate expense data, you’ll be able to create dependable budgets, cash flow forecasts, and financial reports. You’ll know where you’re overspending and what expenses you need to cut or adjust to turn a profit.

With historical data to look at, you’ll know when the seasonal sales are coming and when the expenses tend to accumulate. Knowing this, you can prepare your business with a cash cushion or with the right small business loan.

Come tax season, you’ll be relaxed (or more relaxed) knowing the hard work is already behind you. If you choose to hire an accountant to handle your taxes, you’ll pay a smaller bill since they’ll have far less to do. Plus, you’ll take advantage of more tax deductions and credits, lowering your tax burden and saving your business extra cash.

Often, becoming a profitable business doesn’t require you to double your sales—it requires you to cut your costs. With expense-tracking data to guide your decisions, you’ll be able to confidently remove unnecessary expenses and prioritize the costs that move the needle.

No, expense tracking isn’t always the flashiest administrative task, but it’s a necessary one. Sign up for a free Lendio account to simplify your bookkeeping. We’ll take care of the books so that you can focus on growing your business. Create an account, link your bank, and get started in no time. Make your profitable business dream a reality.

Lendio helps businesses make important financial decisions through in-depth reporting. Track cash flow and create reports today!



Jesse Sumrak

Jesse Sumrak is a Social Media Manager for SendGrid, a leading digital communication platform. He's created and managed content for startups, growth-stage companies, and publicly-traded businesses. Jesse has spent almost a decade writing about small business and entrepreneurship topics, having built and sold his own post-apocalyptic fitness bootstrapped startup. When he's not dabbling in digital marketing, you'll find him ultrarunning in the Rocky Mountains of Colorado. Jesse studied Public Relations at Brigham Young University.