How to manage & track business expenses in 7 steps

Company finances might seem simple—revenue comes in, expenses go out—but that isn’t the whole picture. No matter the type of business expense, whether equipment, maintenance, or travel costs, spending requires proper categorization and tracking to ensure your organization remains solvent.

Understanding how your company spends its money delivers a clear perspective of its financial standing—establishing budgets, minimizing taxes, and remunerating employees and creditors is impossible without it. 

Read on to find out how to manage business expenses, and nudge your small businesses toward achieving financial solvency.

Benefits of tracking your business expenses

Whether you’re tracking expenses for a small business or at the corporate level, here are the benefits you’ll enjoy.

Keeps internal records organized

Expense tracking makes sure the company accurately assesses its current financial footing. And meticulous organization speeds up necessary activities like sharing financial information with investors, filing taxes, or responding to audit requests from the IRS.

Improves cash flow

With an accurate understanding of the business's cash flow, you can reduce unnecessary costs and review data to inform critical decisions. For instance, if projecting a shortfall, you can proactively mitigate the damage. In the case of a surplus, you can reinvest in your business. 

Streamlines financial planning

With a clear financial perspective, companies can develop a growth strategy for the future. Leadership can use the data to identify necessary and productive operational expenses while uncovering and eliminating waste.

Identifies tax savings

Many expenses are business deductions, but authorities require proof to qualify for these savings. Learning to manage business expenses for taxes ensures the company tracks and records deductions to minimize its tax burden and optimize any returns or credits.

Uncovers fraud

It’s in a company’s best interest to routinely record and review expenses and related financial records for incorrect and potentially fraudulent spending. When identified in a timely fashion, some errors can be corrected or challenged, reducing costs and safeguarding a company's credit rating.

Challenges of tracking business expenses

Companies may run into issues when tracking their business expenses, regardless of their size or revenue.

Human error

Logging expenses manually may lead to missed or duplicated transactions, keying errors, or incorrect totals. Implementing expense tracking or accounting software that automatically imports transactions from credit cards or bank accounts and reconciles bookkeeping records reduces the risk of human error.

Delayed approvals

It may take a few days for specific transactions to clear the payment process, meaning your account may not accurately reflect the actual balance. Keeping track of expenses as they happen provides an exact bank account balance.

Time lags

The time it takes a company to record and review its expenses affects the accuracy of its bookkeeping records. Implementing accounting software that reconciles expenses in real-time ensures precise financial reports.

How to keep track of your business expenses: 7 tips

Here are seven of the best ways to track business expenses. 

1. Open a business bank account

Open a business bank account to keep company and personal finances separate. Separating taxable income from business funds simplifies financial management and expense tracking.

Typically, businesses have three bank accounts to differentiate business expenses and income:

• Business checking account: Manages day-to-day transactions and costs.
• Business savings account: Earmarks funds for investment and growth.
• Merchant services account: Accepts customer transactions.
  

2. Select an accounting system

Determine which accounting system to implement—cash or accrual. Each has its own benefits:

• Accrual accounting systems track revenue and expenses as they occur, not when the company receives a bank statement or makes a payment. Accrual accounting is the standard for growing or larger businesses.
• Cash accounting systems recognize transactions when there’s an exchange of funds. Small businesses and startups typically leverage cash accounting.
  

3. Choose corporate credit cards

When traveling or purchasing supplies, a corporate credit card is the perfect solution for tracking business expenses. It minimizes the likelihood of mixing up personal and company spending and provides a monthly transaction statement, streamlining bookkeeping efforts. 

Corporate credit cards usually offer loyalty programs that generate significant cost savings for users. Companies should review credit options to maximize cash back or reward points for use toward airfare, hotels, and more. And for new businesses, successfully managing a corporate credit card builds their credit history, which they can leverage to secure bank loans and investments. 

4. Use software to track business expenses

There are many types of affordable accounting software available to streamline expense management. Some platforms, like FreshBooks or Quicken, offer simple solutions, while others, like Engine’s travel expense tracking software, specialize in categorizing and managing specific spending types.

5. Record expenses

To keep records current, employees must regularly log their expenses. Encourage team members to dedicate some time to updating the accounting software with their spending, whether upon purchase, receipt of a bank statement, or at a chosen interval. Regularly reviewing spending records to identify potential savings or unnecessary expenses is also a good idea. 

6. Implement an expense policy

Establishing an expense policy gives you control over all the transactions in your company. It also standardizes the reimbursement process, making timely remittance easy for the bookkeepers. 

Creating a solid framework for corporate spending consists of:

• Deciding what constitutes a valid expense
• Placing limits on the cost of goods
• Defining payment methods for corporate spending, such as using corporate credit cards exclusively for business travel
• Outlining the business purchase reimbursement process

Ensuring employees follow the expense policy standardizes the tracking and recording process and compensates everyone promptly.

7. Use invoices 

Implementing an invoicing system consolidates business transactions and encourages clients to pay on time. Supplier invoices track services, materials, and hourly costs while generating a paper trail of expenses should the company face an IRS tax audit.

Additional tips for tracking business expenses

Here are some ideas to improve business expense tracking and management.

Review business metrics

Review financial metrics, income, and expenses before deciding on an accounting methodology. If you juggle multiple business bank accounts and complex expenses, accounting software that streamlines the tracking and reporting process may be the best fit. And if you’re running a small company with straightforward business finances, spreadsheets may be more appropriate. 

Hire a bookkeeper

A bookkeeper takes reconciling bank and credit card statements off management’s hands. If you’re a smaller business that can’t afford a full-time bookkeeper, many work freelance, allowing companies to tailor their hours according to demand, like during tax season. 

Identify tax-deductible business expenses.

Identify business expenses that deliver tax deductions to determine how the company can optimize its tax return. Maximize deductions by saving expense receipts for:

• Advertising
• Travel
• Rent
• Banking fees
• Vehicles
• Housing
• Food
• Repairs

Keep track of your business expenses with Engine

Engine understands the difficulties of expense management for corporate travel. That’s why we provide clients with categorized receipts and consolidated invoices to streamline business expense tracking, recording, and reimbursement processes.

Our advanced reporting tools deliver insights into spending trends, helping companies control costs and forecast travel budgets. We even optimize rewards for travelers using corporate credit cards to book flights, hotels, and rental cars.

With Engine, there are no contracts or administrative fees, just straightforward travel planning and expense management.