Accounting · December 10, 2020

How to Track Business Expenses

Knowing how to track business expenses is an essential skill for success, particularly when first starting your business. Even if you're outsourcing your accounting and bookkeeping needs, having a grasp on the numbers can help you better understand where your funds are going each day, week and month.


The basics of tracking business expenses

A business expense is any cost incurred as a necessary part of conducting business. It could be a lunch meeting with a client, taxi cab rides to visit a satellite office, travel expenses for an on-site demonstration or attendance fees for a conference. You'll need to account for these costs so you can monitor the growth of your business and keep track of deductible expenses to help prepare tax returns.

It's important to implement a system to organize receipts and other expense documents from the start. Some basic tips on how to track business expenses include:

  • Set up a dedicated business bank account and business credit card
  • Link your bank account to your accounting software to automatically import transactions
  • Use software to categorize expenses and keep them all in one place
  • Review and categorize your business expenses regularly

Technology can help

The right tools and systems can make a difference when it comes to tracking business expenses. Some businesses still rely on pen-and-paper charts or Excel spreadsheets to track their expenses. As your business grows, you may decide to look into accounting software to automate your expense tracking,

There are various online, cloud-based software systems that sync with your business bank accounts and business credit cards. They allow business owners to check and update their finances anywhere, from any device. Popular accounting and expense tracking programs like QuickBooks, FreshBooks, Wave, Expensify and Shoeboxed offer options that import credit card transactions automatically. They also let you load a receipt with a photo or enter an expense manually.

Check with your bank first to see if they offer any digital financial management tools for expense management that integrate with your existing accounts and software.

How to define and categorize expenses

The exact way you categorize business expenses depends on the goods and services you need to run your operation. However, you can think in terms of some broad categories that most businesses share. These include:

  • Vendors: You'll need to pay other companies for services like accounting, advertising, online services, graphic design and other common needs.
  • Office needs: Think of these costs as the physical—and digital—goods you need to operate your business. Rent and utilities for your office space fall into this bucket, but so do things like office phones, employee computers and any software.
  • Employee expenses: This includes not only salaries but also benefits packages, bonuses, recruitment and employee education programs.
  • Day-to-day costs: You'll encounter some smaller, everyday expenses as you run your business. You may need to pay for travel, meals while on the road and printing or publishing costs for promotional materials.

Items that are partly for personal use—such as a phone, car or home office—must reflect that mixed use. You can only deduct the percentage of the cost that you use that device or space for business. For example, if you use your phone for personal reasons 75% of the time and for the business 25% of the time, you'll only be able to count that 25% of the cost as a business expense.

Staying on top of receipts and transactions

Recording all expenses promptly can be as easy as opening an app and snapping a picture of your receipt. However, you should also keep hard copies of receipts and include a detailed note on the back outlining what the expense was for. That way, you'll always have a backup paper trail of your business activities if you ever undergo an audit. You can organize these hard copies by month and store them in file folders.

When it comes to vehicle-related expenses, keep a notebook in your glove box or use a note app on your phone. You can use this to record where, when and why you used the vehicle for business and how far you drove.

Even if you use accounting software or apps to track expenses, get into the habit of reviewing your expenses regularly. Review your expenses weekly to make sure the transactions are categorized properly. Finally, review your bank statements against your expense ledger each month to ensure you've properly accounted for all transactions. With these habits in place, you'll be able to track your business expenses consistently and accurately.

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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.