Managing Business Expenses: The Importance of Making Budgets
Reading Time: 5 minutesManaging business expenses plays a massive role in keeping business operations afloat and preventing them from running out of money.
Many small business owners fail to realize financial challenges until it is too late.
This article will examine critical areas to help keep your finances healthy. Also, we’ll be looking at the importance of making budgets and managing business expenses.
How to achieve good financial health
- Know what’s going on
- Monitor cash flow
- Manage employee expenses
- Pursue tax returns
Know what’s going on
Knowing what’s going on in your business would seem a pretty obvious thing to do.
For an enterprise of any size, from sole traders to those with 500 employees or more, things could go wrong if you don’t accurately track what’s happening daily.
Staying on top of your expenses may seem like a chore, but as soon as tax season arrives, you’ll be glad you did.
It can suddenly become an absolute nightmare if you’re left putting all those tiny receipts in order at the last minute.
Not only is that scenario unnecessarily stressful, but it can be a real shock to discover how those seemingly insignificant day-to-day costs have mounted up.
They can have a surprisingly significant impact on your overall finances.
Monitor Cash Flow
The Oxford dictionary states that cash flow means the total amount of money being transferred into and out of business, significantly affecting liquidity.”
If you don’t” have enough cash flow, you could quickly find your business is in difficulties. It is only sensible to do all you can to manage it carefully to avoid a deficit.
By tracking expenses daily, you’ll be to figure out arising problems immediately.
This is essential expense management and helps you act quickly if your expenses exceed your income.
It can help you be more financially aware and stem unnecessary money flows, making your business run smoothly and improving profits.
Create budgets
Creating detailed budgets prevents your business from falling prey to many financial problems.
No matter the size of your enterprise, having a detailed plan ensures you have a clear road map to ensure financial success.
Business expenses such as utilities, rent, loans, insurance, payroll, advertising, goods, and services are usually relatively straightforward to forecast.
Imagine the problems it could cause if you could not meet just one of these obligations. By budgeting, you help to prevent the possibility of the worst happening.
A company commonly maintains more than one type of budget; they can be long or short-term and, for best effect, must be kept current and updated regularly to accurately reflect what is happening within the business.
This allows everything to be planned for ahead of time and helps build a case for taking on new staff, product lines, premises, etc.
Equally, if the unexpected happens (Covid -19 is a good example), they can help you prepare for difficulties that must be faced.
Manage employee expenses
If you have a sales team who sends in receipts for travel costs, fuel, meals, hotels, and other general expenses, you must ensure they all seem legitimate and proportional.
Equally, your employees don’t want to wait months for you to reimburse them.
Keeping everything running efficiently will keep you ahead of your costs and your staff repaid quickly.
Pursue Tax Returns
When tax season comes around, you could save tremendous stress by preparing.
Meticulous records ensure everything is prepared and ready to declare at tax time.
Tax-deductible expenses differ from country to country, and using them can help you get some money back.
Ensure you find out which of these are with your local tax office.
Examples include:
- Fuel and travel expenses
- Business meetings and lunches
- Mobile phone and data costs
- Rent
- Office stationery supplies
- Home office expenses
If you don’t accurately categorize and disclose these expenses, you won’t be able to claim them, and more of your hard-earned money will end up in the hands of the taxman.
Making Budgets and Managing Business Expenses for Profitability
Gross profit is income minus expenditure. Knowing this figure lets you see if your business is running viably, making it more attractive to investors or improving your chances of receiving financial aid through business loans, mortgages, etc.
It may seem obvious that all business owners would want to know how well their business is doing, but the reality is many have minimal idea of the actual picture until they do their annual tax return.
Tracking and managing business expenses can prevent you from making poor financial decisions.
Even if you see a healthy number of sales, you’re heading into trouble if your expenses are too high.
Many business owners believe they are doing better and have higher profits than they do.
Bottom Line
To maintain a healthy bottom line, it’s crucial to;
- Stay aware of how much your business is spending
- Stay on top of money management
- Keep your expenses as lean as possible to achieve the best profits
To aid in this, you’ll need tools to help keep track of expenditures. They can ensure your records stay up to date and, most importantly, keep you in the driving seat.
Getting Help
Due to the importance of maintaining budgets and tracking expenses, it may be worth investing in some help.
Opting for an in-house accountant may require you to provide them with additional software to make the work faster, more efficient, and more accurate.
You could also consider the services of an external accountant.
Having little knowledge of a business’s cash outflow or inflow blindsight you from knowing the company’s financial status.
You can’t be prepared when the unforeseen happens and can’t make plans for the future.
Expenses App
The Expenses App allows you to track and manage company and employee expenses efficiently.
Use Reimbursable Expenses to keep track of the payments your employees have made on behalf of your company.
Your employees can upload their expenses and request reimbursement directly in the app. They will need to include information such as the details, taxes, and the expense date.
Using a set of simple widgets, you can check the status of the expenses and see what has been paid and what is pending.
Just like other Akaunting apps, it integrates right into your accounting suite, in this instance, under reports.
Final thoughts on managing business expenses
Managing your business expenses is crucial to sound financial practice and helps your business survive and thrive.
Not taking the time to make budgets and manage expenses could result in you losing your business.
It’s necessary not only to plan but stay flexible.
Without knowing precisely where your company stands at any one time, you will not be able to implement new strategies.
