Are you aware of how much money you make in your business and how it’s spent? If you find yourself worried about the slow or absent growth of your business despite increased sales and you can’t tell how the money was spent, you are not alone.
Many business owners have once felt frustrated at being unable to account for money invested into their business. However, if you want to grow your business you need to separate personal needs from your business and learn how to track your business expenses.
This article explains why you should track your business expenses and how to automate expense tracking for the growth of your business.
4 Benefits of tracking business expenses
The difference between a business that becomes profitable and the one that’s cut short is the business owner’s commitment to record-keeping. According to Failory, 2 out of 10 new businesses fail in the first year of operations. The common thread in business failure reports is business owners who overestimate the cash flow in their business. Keeping track of your expenses gives you a firm idea of the current financial health of your business and what the next step to take in your business should be. Here are the benefits of tracking business expenses:
It helps you manage cash flow
When you are uncertain of cash flow in your business, you can’t accurately project business growth. Certain expenses are easy to ignore but end up affecting your bottom line. For example, if you run an eCommerce store you need internet access to stay on top of business activities. From uploading product images to responding to customer complaints, it requires that you stay online. Now, what if you assume that your internet costs are N10,000 while in truth, you actually spend over N30,000 a month? That’s N20,000 that won’t be accounted for!
Let’s go further.
If your recorded profit for the month by your calculations is N100,000, what you truly made is N80,000. That is if your internet costs are the only expenses you didn’t record. It’s very easy to neglect the ‘tiny’ expenses in business, especially the ones we incur on the go. When you have a system to record these expenses, you get a birds-eye view of where your money is going and areas where you can save costs.
It opens you up to investment opportunities
Every business owner wants to scale at some point. This can only happen if you can prove to potential investors that you can guarantee an ROI based on your current business metrics. You can’t create a pitch without including your financial projections. If your business is operating, your financial projections will be drawn from current metrics.
Don’t assume your business is too small for investors, opportunities come up every day. Maybe you don’t intend to be on Shark Tank, what about when you need a loan from family or friends to scale operations?
In addition, loan facilities will require your business records to verify that your business is creditworthy.
It helps you forecast business growth
Knowing your business’s financial health gives you a deeper understanding of what’s working and what’s not, allowing you to make more informed decisions. If you are having business challenges, tracking your records – income and expenses- can help you save your business before it gets into murky waters. You can quickly see which expenses need to be cut or increased to make you more profitable.
It helps you stay tax compliant
Based on recent government regulations, there will be more enforcement on tax payments in Nigeria. To stay tax compliant, you need records to show your business expenses. Any business owner who follows their tax obligations understands the anxiety tax season causes.
You can save hours of tax documentation by keeping your records in order. Not only that, but you can easily claim your tax-deductible expenses, saving you money.
How to track business expenses
Despite knowing the benefits of tracking business expenses, you might feel like it’s an overwhelming task. The traditional method of tracking business records involves writing them manually. The risks of using this method include but are not limited to loss of financial records. It’s also inefficient and cost-intensive. You could also forget some of the expenses made no matter the size of your business.
Thanks to advancements in technology, tracking business expenses can be done faster and more conveniently. If you are a Prospa member, you can automate expense tracking and management in minutes.
Get a dedicated business account
Your personal bank account is not adequate for tracking business records. Maintaining a separate business account makes keeping track of your business expenses so much easier. It also helps you avoid using business funds for personal needs. It ensures all business transactions are carried out through your business account and does not get mixed up with your personal expenses.
While it can take you some days to set up a business bank account in Nigeria, you can get a business account on Prospa in 5 minutes. Prospa has a minimum opening balance of N0 and you can set up sub-accounts to plan and manage for different areas of your business. In addition, you can get virtual or physical cards for making payments. With all your expenses being tracked in one account, your expenses are automatically captured.
Group your expenses
Do you want to know if your internet expenses increased this month or stick to a budget for marketing activities? You need to classify your expenses under different categories to make your financial reports easy to understand and traceable. For example, your categories could be utility bills, rent, office equipment, travelling expense etc
On Prospa, you can categorise business transactions to know who you paid money to and for what. With the subaccounts on Prospa for specific business operations, you can allocate a percentage of revenue for these recurring and non-recurring expenses. This helps you to make sure you don’t go above your budget and stay conscious about spending money.
Managing expenses as a business owner will need you to create a budget and stick to it. This works in improving personal finances and the same applies to your business. A good way to create budgets for businesses is to use a sub-account.
A sub-accounts is a separate account listed under your existing main account. It functions just like your bank account and you can use it to manage your finances. You can apply for a sub-account at your bank or create one in minutes on Prospa. For example, if you want to spend only N80,000 monthly on marketing expenses, can create a sub-account named Marketing Budget and transfer the exact amount into this account.
On Prospa, you can create as many sub-accounts as you need. You can also automate this process whereby a percentage of all revenue goes into this account automatically which also allows you to save money for other business projects.
Use an accounting software
Using traditional banks is the go-to for most businesses, but you can do so much more with a business and banking software like Prospa. While you can get an account and conduct transactions with your traditional bank, Prospa helps you to manage taxes, invoicing, employees and customer relationships. You also get a free webstore to upload products and sell online faster. Through the business hub feature, you can track all expenses you’ve made in a month. You can see where you spent the most money and also the most profitable parts of your business.
If you currently use accounting software like WaveApp, Quickbooks and Sage One, you can integrate it with Prospa to use their products and also enjoy the full benefits of using Prospa. Now when you make a transaction on Prospa, it’s automatically captured by your accounting software, no need for manual entries. By doing so, errors in recording transactions or missing transactions are minimal.
Review statements weekly and/or monthly
After you’ve automated the process of recording your business expenses, you can now review your financial records as you wish. As an entrepreneur, you know that data is the lifeblood of your business. With access to your records, you can make informed decisions about your business. You can tell when it’s okay to hire new staff, if you need to increase the purchase of a certain product or if there’s an expense you can cut down.
An entrepreneur who wants to experience growth in their business needs to separate themselves from their business and get a dedicated business bank account where all business transactions will take place. Tracking your business expenses makes you manage cash flow better and stay financially aware. With your records stored online, you can quickly find reports based on the date or time. Also, your records stay accessible to you from anywhere in the world. You can now confidently make decisions that contribute to the success of your business.
Ready to take control of your business finances? Get a business bank account with Prospa in 5 minutes and explore features like sub-accounts, webstore and invoicing that help you manage business operations.