It is not uncommon for an entrepreneur to have a hundred things running in their minds at all times. Marketing the brand, bringing out new lines of products or services, procuring raw materials, finding investors, growing the business–the list can go on and on irrespective of the field of business you are in. Prioritization becomes inevitable and the entrepreneur must decide which tasks require immediate attention and which tasks can afford to take a backseat. More often than not, it is the tracking of expenses that tend to be put off until the tax season is upon us and by then, everybody would be running around like headless chickens! So, here are three good reasons why the regular tracking of your business expenses is of supreme importance to the success of your business.
It will help you manage your money better: Every business has a budget and it is the business owner’s responsibility to make sure that they don’t overshoot their budget. So, how do you make sure that you don’t blow through your business budget? By keeping track of your business expenses! Keep a record irrespective of whether the expense is trivial (such as coffee for a client) or significant (office rent, electricity, etc.). This will help you understand where to cut corners in order to stay within your budget. It will also give you an idea about the areas where you can spend more money and whether your budgeting was accurate or not.
It measures your business’s profitability: Everybody knows that a business must be profitable in order to be successful. In order to measure profitability, you must measure the profit first. Your business’s profit is what is left of the revenue it generates after subtracting all the other expenses it incurs. Expenses may vary from cost of staffing, employee health benefits, cost of raw materials and office rent to overhead costs that every business ends up incurring simply by being in business! Unless you stay on top of your business expenses, you will not be able to tell if your business is making money or losing money.
Tax season will be less taxing: Are you one of those entrepreneurs who starts searching for and digging out receipts and invoices when tax season is around the corner? How many shoe boxes of receipts and bills do you have to go through to find all the deductions you may be eligible for? Do you find yourself physically and mentally exhausted by the time it is over? Weed out such unnecessary, distressing tasks from your life by staying organized and having a system to track all your business expenses. A system—be it an excel sheet, an app, or an actual register where one manually makes entries—will ensure that you don’t overlook any major expense. It will also serve as an official documentation in the event that your business is audited by a member of the government’s income tax department.
Keeping track of your business expenses will also allow you to spot a financial crisis well before it actually happens. Most often, entrepreneurs don’t fully realize the seriousness of their financial situation until it is time to declare bankruptcy! This could very well have been avoided if only they had been tracking their expenses from the start. When you become aware of how much money is coming in and how much is being spent on what, you, as an entrepreneur, would become more cautious and disciplined regarding spending. This discipline will influence other areas of your life and bring overall stability to your life as well as to your business.