Keeping track of business expenses helps you save money. It impacts your bottom line, and it enables you to realise how much profit your business is making and more. There are lots of options available to track expenses, such as filing receipts away and organising them once a year, logging them periodically or using an app or software.
Here’s a list of pros and cons for each type to help you decide the best way to keep track of business expenses.
Sort Receipts During Every Tax Period
This probably isn’t a good idea if you want your business to grow . It involves collating all of your receipts throughout the year and analysing them before the tax deadlines.
Pros
- You can focus on other business projects. Analysing business expense receipts all the time can seem redundant. If you prefer to forget about it for most of the year and want to dedicate time to sorting receipts, then this might work for you. You can collect all of your expense receipts throughout the year, focus on other areas of your business and then set time aside towards the deadline look at each receipt.
However, this isn’t an approach we’d recommend.
Cons
- You can misplace them easily. You might end up with thousands of receipts which can be a lot to keep track of. There’s the possibility of losing a handful of valuable receipts and not even realising.
- You might be at risk of missing vital tax deadlines. It can take a lot of valuable time analysing endless receipts to make sure the expenses are accurate. Remember, these expenses need to fall in line with HMRC’s ‘wholly and exclusively’ rule, so you might waste time checking that every payment meets the criteria.
- Your business could potentially suffer. A knock-on effect of the previous scenario is that the more time you spend looking through every receipt to make sure the expenses are accurate, the less time you can focus on other projects or business tasks.
Log Receipts Periodically
Instead of running the risk of misplacing receipts and trying to analyse thousands close to vital tax deadlines, it might be a better idea to log receipts periodically instead. You might decide that logging receipts daily, weekly or monthly is a lot more manageable than doing it once a year.
Pros
- You stay in control. Find an interval that suits you. It means you can set yourself realistic expectations on when you’ll work through receipts regarding your business expenses and how many you can get through.
- There are fewer errors. Over a month, you might only have a handful of expense receipts that you can look at and organise neatly. By only having a manageable amount at a time, there are likely to be fewer errors as you’re not rushing to finish before deadlines.
- You’ll be more organised. It allows you to create a more orderly system. Every week, you can put the receipts in a file, and start logging them in batches. This keeps your records organised, saves valuable time and makes sure that you claim back the relevant business expenses.
Cons
- You might forget about it so you’re forced to play catch up. It is really easy to forget about tracking your business expenses for one month. As a result, you might have a backlog and extra spend time trying to get back on track.
- They can still be misplaced. Even if you do it periodically and you have a nice, organised filing system - that doesn’t mean your records will always be secure. You could spend a long time searching for these expenses and even longer making sure you can claim for them.
- You might not have an easy-to-use system. If you have a confusing system, then you might make it more difficult for yourself. It can end up being a lot more challenging to note down these business expenses if you use a document that doesn’t make a lot of sense. Plus, if you use a spreadsheet, it can be accessed by anybody and can also be inaccurate.
Use an App or Software
Running a business is never straightforward and you don’t need sophisticated methods to track expenses that waste valuable time. Another technique that might help is using a specialist bookkeeping app or software with features that will take your business to the next level.
- You can save time by doing it in seconds. Doing this mechanically can take up a significant portion of your time. Although, with an app or software, you can take a picture of your expense receipt and it’s stored in the cloud instantly. No hassle whatsoever.
- You won’t lose anything. The cloud is more secure than you think. There’s always a risk that you could lose valuable physical receipts or documents which makes it difficult to claim for expenses. With an app or software, your receipts are always secure and stored in once place.
- There won’t be any errors. With an app or software, the time you save allows you to check each expense in greater detail, so mistakes don’t slip through. For example, it’ll help you realise if certain expenses meet HMRC’s rules about what you can and can’t claim.
- You can focus on other business tasks. Apps and software allow you to log and track business expenses easily. This gives you back the time and freedom to focus on other business projects, knowing that you’ve taken care of one crucial job in a matter of seconds.
- It’s always going to be more organised. You might have the best filing system around, but an app or software will store them in one place for you. No more searching through multiple files as they’re still in one place.
Cons
- It can be a little confusing. There’s always a chance that using an app or software could include so much complex terminology that you spend more time defining terms rather than tracking expenses. Although some apps are designed with simplicity in mind and feature no jargon, so it’s even easier for you to use.
- There can be a lot of unnecessary features. It’s easy to use an app or software that has so many features that you don’t know what to do with them. Instead, you might feel that a reliable pen and paper can do the trick. If you do want to use an app to track expenses, look for one that only has the features you’ll need.
- You might not be prepared to make the jump. You might feel like you’re not quite ready to make the jump to an app or piece of software just yet. If other methods have served your business well so far, then there’s no harm in continuing with them. Although, when using the right app or software, you’ll quickly see how helpful it can be to your business.
Even if you still use traditional methods to track expenses, you need to make sure you use the best and most convenient ways to follow them. To help with that, we’ve created a free template to help you log business expenses easier than ever.
Make Business Bookkeeping a Breeze With These Templates
Manage your business and its expenses a lot more efficiently, with our free bookkeeping templates. Whether you need a template for profit and loss, cash flow, petty cash and more - we’ve got you covered.
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