Tracking Professional Services Expenses
The “harmless” habit that creates big headaches
In business and life, we can all benefit from paying more attention to where we spend our money. However, tracking business expenses is about more than just saving receipts. There is one basic concept many business owners can be slow to accept when it comes to managing their finances.
Pay for your business expenses from business bank accounts
This may seem like a no-brainer, but plenty of small business owners, particularly those just starting out, will occasionally reach for a personal credit card or checking account to pay for business expenses. It’s a convenient solution when you are in a pinch, and at first, seems completely harmless. Unfortunately, it is a habit that can snowball into a much bigger problem when you need to track and manage your finances.
“If I save my receipts, what’s the big deal?”
Saving your receipts will help you record details of your business expenses and can protect you against a future audit from the IRS. However, if you are using a number of different bank and credit card accounts to make these purchases, you are actually working against technology and making your bookkeeping processes unnecessarily complicated.
The bookkeeping process is designed to sync or match your real business activity (in this case, paying for an expense), with changes in the balances of your bank and credit card accounts. Accounting software like Quickbooks automates this process by pulling information from the bank accounts you use to make purchases. When you spend from a personal account, your personal banking information automatically gets mixed into your business finances. The only solution is to comb through individual receipts on a weekly or monthly basis and manually sort out the details. This is a time-consuming activity that is completely avoidable if you had limited your expenses to your business bank accounts and let the accounting software do the work for you.
Additionally, it becomes more time-consuming to go back and check for errors in your numbers. No software is perfect and monthly account reconciliations are a crucial step in the bookkeeping process. It becomes much more difficult to go back and compare your bookkeeping records against your bank statements when there are several external accounts to monitor. Your accountant must either charge more money to go through the additional bank statements or sacrifice the accuracy of your numbers.
Opportunities for Improvement
Start to set parameters for how you finance your business and keep things as simple as possible. It is always tempting to combine personal and professional expenses (airline miles are easy to rack up), but it costs time and money to go back and correct these inefficiencies. If you are just starting out, you can begin with opening one separate credit card for business expenses. If your business and personal credit cards are from the same bank, you may still be allowed to combine airline miles and other rewards.
Don’t forget to look at other online transactions you make for business on Paypal, Amazon, Venmo, AirBnb, etc. If you are using any of these on a regular basis for business (at least monthly), consider creating separate business accounts on these platforms that are tied to your business checking account and credit cards.
Every business must find the right balance of financial resources and efficient bookkeeping and reporting. Talk to your business advisors (accounts, bookkeeper, and/or bankers) to identify cost-saving opportunities that simplify your finances without adversely affecting cash flow. You can also contact Firm Numbers for a free assessment of your books and financial management best practices.
Firm Numbers is dedicated to helping pull entrepreneurs out of decision-making based on emotion and get the necessary data to objectively run their business. Book a free consultation online to find out how our bookkeeping and accounting packages can help you be the boss, not the bookkeeper.
