How to Track Business Expenses in a Fast-Growing Start-up
As part of my role as Administration Manager at Doqaru, I help to track business expenses. It’s a role that our directors, Sarah and Yekemi, did themselves when they worked on their own. But as soon as they could afford to, they delegated this role. And I’m delighted to be the lucky winner of the role! I love my job. That’s why I’d like to share some of the tips that I use to keep things on track here at Doqaru. So, first things first. Here are a few quick steps for tracking your business expenses.
Open a business bank account.
Two banks with the best business accounts are TSB and Royal Bank of Scotland (RBS). TSB offers a wide variety of options including a contactless card reader for those on-the-go payments. This means you won’t have to go online to take payments from clients or to pay your suppliers.
RBS has a free accounting system, FreeAgent, which you can use. This is great if you also need an accounting system.
It’s best to stick to banks that are well-known for Business Customer Service as well as the following:-
- You want a bank to have low interest rates and minimum monthly charges
- You want a bank that’s easily contactable whether in person, online or via telephone banking
- Your bank account of choice should have good accounting software integration such that you can connect your accounts system direct to the bank. This makes it easier to run your business
- It’s also a good idea to check the fees for the business transactions that you use the most. Doing this can help you to pick the best business account for your needs
Select an accounting method
There are two main accounting methods; cash basis (simplest method and ideal for small businesses) or accrual basis. You should consider the size of your business when selecting your method.
The difference between cash and accrual accounting lies in the timing of when sales and purchases are recorded in your accounts. Cash accounting recognises revenue and expenses only when money changes hands. Accrual accounting recognises revenue when it’s earned, and expenses when they’re billed, but not yet paid.
Implement an accounting system
It is essential that you record business expenses and income. Some of the best systems to do so are Sage, FreeAgent and Xero. Sage can be used for small to medium-sized businesses. It has the option of accounting and payroll software as well as linking directly to your bank account.
FreeAgent can also be used for small to medium-sized businesses. It is a free accounting system that you get with an RBS business account, as mentioned earlier – and with no hidden monthly charges. There is also the benefit of linking directly to your bank account. Xero can be used for any size of businesses. It includes a small fee every month and can be upgraded depending on what suits your company needs. Payroll software can be added if required.
All the accounting systems mentioned can be changed and/or upgraded depending on what your business requires. Add-ons are available with all 3 including stock control, payroll, pension, linking directly to HMRC for monthly and yearly returns, specific reports, etc.
I have used many systems in my time but the easiness, quickness and simplicity of Xero accounts and the Xero payroll system are great. It has clear instructions and an easy-to-follow video guide on how to carry out tasks.
Track your business expenses
One way to track expenses is through expenses management. This helps so that you don’t get to the end of the month and find that expenses are more than your income. By tracking business expenses, you can also control costs, see what you’re spending money on and how much a company is spending.
Let’s start from the beginning. You need a system for organising receipts/invoices. It helps to have a simple process for authorising, documenting and paying business expenses.
Pay extra attention to these types of receipts:
Meals and entertainment: If you’re having a business meeting, lunch or dinner in a café or restaurant, document it properly. On the body or back of the receipt, record who attended and the purpose of the meal or outing, as well as entering the transaction into your accounting package.
Business travel: Keep all receipts for flights, rail, taxis, parking, etc. Provide a paper trail of your business activities while away. Ensure you can justify the need for travel or who the traveller was and the purpose of the trip. Make note of who the client was when you go out to eat or buy coffee.
Vehicle-related expenses: Record your mileage. You should track where and when, why you used the vehicle for business and the number of miles done. Please bear in mind that there are government set allowance rates per mile up to a certain number of miles. Use correct p/mile according to the number of total miles.
Note: You can claim 45p per mile on the first 10,000 business miles and 25p per mile on anything over this limit. Since the amount is more than £2,500, you’ll have to complete a self-assessment tax return to claim the deduction.
Receipts for gifts: For gifts like tickets to a concert, for instance, it matters whether the gift giver goes to the event with the recipient. If they do, then the expense would be categorized as entertainment, rather than a gift. These details need to be noted on the receipt as it must be considered for tax purposes.
Outcome of keeping a record of expenses within your business
Keep Your Employees Happy
By keeping an eagle eye on your expenses, you can promptly reimburse employees. Prompt reimbursements keep your team happy because they don’t have to chase you to remind you of that expense reports they filed over a month ago. It’s also important to be clear about what they can and cannot expenses as part of your onboarding process.
Quickly Determine How Profitable You Are
By tracking expenses often, as well as your income, you can quickly see your profit margin without digging through piles of paperwork. Expense tracking will also prevent you from guesses your profitability. Many businesses make this mistake. They see the sales coming in, but because they don’t track their expenses, they wrongly assume that their business is more profitable than it actually is.
I hope this has been helpful for small businesses starting to think about robust expense systems. If you’re a small business looking for sales and/or marketing support, get in touch with us at Doqaru by emailing firstname.lastname@example.org or calling us on 01224 289 780.