How to track business expenses

You can track business expenses by opening a business bank account, using a business credit card, choosing accounting software, recording receipts, and creating an expense policy employees can refer to. Effective expense management helps businesses allocate resources wisely, invest in growth opportunities and prepare for unexpected challenges.

Tracking business expenses is critical for maintaining a business’s financial health and ensuring long-term sustainability. Not properly tracking expenses can make it difficult to monitor spending, identify tax deductions and maintain accurate financial records. Here’s more information about managing and tracking your business expenses to help ensure your company can reach its goals.

What you’ll learn:

• Properly tracking your business expenses is critical to ensuring the financial health of your business.

• Opening a separate business bank account and using a business credit card can help you track and manage business expenses more accurately.

• Integrating accounting software to automate and streamline expense management can reduce manual processes and increase accuracy.

• Developing clear protocols and policies for expense reporting and reimbursement can help ensure employees understand how to handle business expenses.

Tracking company expenses can give you a clear understanding of your business’s financial health, inform decision-making, keep business and personal expenses separate, and help with tax preparation and budgeting. And automated expense-tracking systems can help improve accuracy and efficiency. 

Tracking company expenses allows you to:

• Gain profitability insights: Monitoring expenses provides a clear picture of your company’s profitability and can guide decision-making when it comes to resource allocation and spending priorities.

• Inform spending policies: Having an expense-tracking process in place can help your business better observe expenditures across teams. And some solutions—like business credit cards that offer employee cards—can let you customize your own spending policies for your staff. 

• Separate business and personal expenses: Keeping your business and personal expenses separate can make expense tracking easier, which becomes essential for compliance and tax preparation.

• Prepare for tax season: Properly tracking company expenses helps you identify tax-deductible expenses, which can allow you to claim eligible deductions and expedite the tax preparation process.

• Track cash flow: Tracking expenses allows you to analyze your cash flow—or the money moving in and out of your business during a specific time period. And with the right expense-tracking system, you can gain a clear picture of your current cash flow, which can help you manage your finances more effectively and efficiently.

• Budget: Looking at where you’re spending the most could help you identify opportunities to cut costs and maintain or tighten your budget. Pinpointing overspending and determining areas that need more attention give you a clearer perspective and can help you decide where to best allocate resources.

You can track your business’s expenses by opening a company bank account, using a business credit card, choosing accounting software, organizing and storing receipts, and creating an organizationwide expense policy.

Your first step is to open a business bank account solely for your business transactions; this may include a business checking account, savings account or merchant services account. With a separate account, your business expenses can be organized in a single place, making it easier to separate business and personal transactions.

You can also open a business credit card, which can be used specifically for company expenses to help simplify expense tracking and receipt management. With a dedicated business credit card, you can build your business’s credit history, allowing you to access rewards and benefits, such as cash back on purchases and benefits for travel or other business-related expenses.

Integrating your financial institutions with accounting software optimizes efficiency and improves accuracy by reducing manual work and helping increase the accuracy of your financial data. Accounting software solutions streamline the process of tracking, organizing and paying expenses, whether they are invoices from a supplier, rent payments or payroll.

Additionally, accounting software provides reporting tools that offer insights into spending patterns, track financial performance and generate detailed expense reports. These tools help you monitor budgets, identify trends and make informed decisions to enhance your business operations.

Keeping track of receipts involves organizing and storing paper or digital records of your business transactions. This practice is essential for effective financial management and can help with expense verification, tax preparation and budgeting. It can also be useful if you need to reimburse employees for business-related expenses they’ve incurred.

Creating an expense policy means establishing guidelines for how employees can spend company money on business-related expenses. An expense policy defines allowable expenses, such as travel, meals and office supplies, and sets spending limits to control costs. For example, a variety of business cards from Capital One allow small-business owners (SBOs) to track employee spending while earning rewards.

Additionally, an expense policy should outline the approval process for expenses and reimbursement procedures, detailing how and when employees will be reimbursed for out-of-pocket expenses.

Once you have a system in place, having frequent expense audits can help you pinpoint any errors, maintain compliance and streamline the expense-tracking process. This also allows you to adjust policies that might not be working or are causing discrepancies.

Automating your expense management process can help with compliance and help reduce the risk of expense fraud. It can also help ensure expense data accuracy and policy compliance while reducing manual workload by identifying errors, violations and duplicates before approval.

The decision to automate will depend on your business’s specific needs. If you’re interested in getting started with automated expense management solutions, there are ways to do so without breaking the bank. Free accounting software platforms with limited essential capabilities are available, and some offer the opportunity to upgrade to paid tiers for additional features as your needs grow.

To qualify as a business expense, the IRS says the cost should be ordinary and necessary for your business. These expenses can be recorded on a business’s income statement and subtracted from revenue to calculate the company’s taxable net income.

Some of the main types of business expense categories include operating expenses, professional services and marketing, and travel and entertainment.

• Operating expenses: These are the costs associated with keeping your organization running from day to day. They could include office supplies, software subscriptions, utilities and rent.

• Professional services and marketing: These costs can assist your business’s growth, like consulting fees, advertising and training programs. 

• Travel and entertainment: These costs can be incurred when you’re operating outside of your typical workplace, like mileage when traveling to clients or job sites or meals and accommodations on company trips. 

Properly managing your business’s expenses is essential to its financial health and long-term success, whether you are self-employed, a small company or an enterprise corporation. Here are some additional questions you may have about managing business expenses.

To manage business expenses effectively, start by opening a business bank account and using a business credit card. Then, consider accounting software to automate and streamline your expense-tracking processes. Lastly, develop protocols and policies that make it easier for your employees to understand how to use a company credit card—or their own funds for company expenses—and how to be reimbursed.

Looking for a way to simplify expense tracking? See whether you’re pre-approved for a Capital One Business credit card today—with no impact on your personal credit scores.