Do you know what consumes most of your business’s money?
Expense management has the potential to make or break your business because it helps you understand your financial health. You must have a solid expense management system to back you up in a crisis.
Central to business expense management are expense reports, which detail a business’s various costs. Regular monitoring and calculating business expenses, through the expense report, will help you know what consumes most of your expenses and whether it is worth it.
This guide will help you understand an expense report, what qualifies as an expense, and how to calculate and process your business expenses accurately.
Put simply, business expenses are costs incurred when running your business.
Also referred to as business deductions, ordinary and necessary business expenses are subtracted from your revenue to calculate your profits, losses and taxable income.
When tracking your retail business expenses, you can observe expense areas (where the money goes) that inform profits and losses. This can help you explore business trends to use in forecasts.
Examples of business expenses are as follows:
Understanding the types of expenses is crucial for accurate reporting. Business expenses generally fall into two categories:
Within these categories, expenses can further be classified as fixed (e.g., rent) or variable (e.g., utilities), depending on whether they change with the level of business activity.
It’s important to note that not all business-related costs are considered expenses in accounting terms. For instance, capital expenditures like purchasing equipment or property are treated differently from operational expenses. See the types of expenses below.
An expense report is a financial document that tracks and categorizes the costs incurred by a business over a specific period. An expense report contains an itemized and categorized and list of expenses that were made on behalf of the business.
These reports are vital for budgeting, financial analysis, and ensuring compliance with tax regulations. It helps you or finance team determine what money was spent, what was purchased, and how much of the expenditure is approved for reimbursement. It also helps the business to file tax returns, claim tax deductions, and complete audits.
They provide a detailed record of where your money is going, which is crucial for making informed business decisions.
An expense report can be prepared manually or using accounting software, or other popular programs.
Stock amounts or inventory purchases and payments to suppliers are crucial aspects of business operations.
However, these costs are generally classified under the cost of goods sold (COGS) rather than as operating expenses. They are not business expenses (operating expenses)
The distinction is important because COGS is directly tied to revenue generation and is deducted from sales to determine gross profit.
You need to outline and monitor your business expenses regularly to see what consumes most of your money and how to handle them.
An expense report typically has columns such as:
Business expense management keeps you informed of your retail shop’s financial state all year long, helping you understand your expense areas. Other importance include:
Tackling spending doesn’t mean spending less but making sure all expenses are there for the right reason that supports the business. Unattended spending can become a barrier to your financial models because it can interfere with the budget. When you monitor expenses, you identify the spending patterns of your business, teams, or utilities.
Expense management keeps your expenses aligned with your budget. You may not be able to sync both at once. Still, with consistent monitoring and analysis, you can understand where to control your expenses and areas that need the allocation of additional money.
Tracking your expenses gives you a comprehensive view of your profit and loss statements. This informs whether your business is attaining profit or incurring losses.
When your staff can submit expenses and receipts in real time, the finance team can approve/reject them immediately. This allows faster reimbursements and boosts the employees’ morale.
You need to protect your business from frauds like false expense submissions and reports. A concise expense report helps you keep a tab on all employee expenses, using outlined expense reporting methods, preventing any abuse of business funding.
Accurate expense reporting requires attention to detail and a systematic approach:
Ensure that every expense is classified correctly to avoid confusion during financial analysis.
Always keep receipts and make notes about the nature of the expense. This practice helps in both tax filing and internal audits. Importantly, gather all relevant receipts and documentation that prove the expenses incurred.
Recurring expenses comprise essential utilities that run your business – rent, phone bills, Internet, subscriptions, bank charges etc. Track all your recurring payments to see the businesses’ overall expenses, including each employee and department. Do this regularly to uncover opportunities for cost reduction.
Employ accounting or expense management software to automate and simplify the expense tracking process, reducing the risk of human error.
Regularly review expense reports to catch errors early. This also helps in budgeting and financial forecasting. Ensure you identify the larger expenses and how to reduce certain costs.
The best way to manage your expenses is through a template. Create or download a template with all necessary fields, such as date, category, amount, and all the others we mentioned above.
Keep a copy of all submitted expense reports for future reference and compliance purposes. At the end of the year, you want to review your business expenses and identify the costs that are too high, those you can discard, and those you can reduce. You also want to use the data to understand the trends and forecast your future spending.
Managing business expenses manually can be time-consuming and prone to errors. Bizkit offers a robust solution to streamline the entire process.
With Bizkit, you can easily track, categorize, and report your business expenses, ensuring accuracy and compliance. Its user-friendly interface allows you to automate most of the manual tasks, saving you time and reducing the likelihood of errors.
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