How to track expenses for a small business

Part of owning a business is spending money to keep it running. Any money spent in this way is known as a business expense.

Tracking your expenses can become very complex if you have no experience, but we’ll provide a few tips to make the process much simpler. In this article, the topics we’ll cover include:

• Common expenses for small businesses
• How to track expenses for a small business
• Why tracking expenses is important
• Tracking expenses with Countingup

A business expense is a cost incurred during the ordinary course of running a business. This refers to a number of things, as you’ll end up spending money on all sorts of things to keep your business running. Most expenses fall into one of three categories. 

Operating expenses are expenses you regularly incur while running your business, but importantly they do not include the cost of your goods. Buying stock or raw materials to make products don’t count as an operating expense because these purchases should be categorised separately in your records as ‘the cost of goods sold’. Despite this, they can still be claimed when filing taxes, just like an operating expense, so it’s important to keep your supplier receipts for later use. 

Here’s a few examples of things that would qualify as operating expenses:

• Rent
• Utilities
• Office supplies
• Insurance
• Employee wages

Anything that would interrupt the running of your business if you were to stop paying for it is an operating expense. 

Non-operating expenses are things that you don’t need to spend money on to keep the business running. That’s not to say they don’t have a huge effect on your business, it’s just that they are not expenses that you pay every week or month.

Examples of things that might be referred to as non-operating expenses are:

• The costs involved in relocating your business
• Bank fees and interest charges
• Legal fees during a lawsuit

It’s essential to separate non-operating expenses from your operating expenses. For instance, if you’re trying to create a forecast of your cash flow, don’t include non-operating expenses as they might be part of your cash flow one month but not the next.

Capital expenses fall somewhere between operating and non-operating expenses. While capital expenses are important for the continued growth of your business, they’re not something you’ll regularly be spending money on.

Examples of capital expenses are:

• The purchase of new equipment or machinery for your business
• The purchase of furniture for your business
• Buying a property to operate your business from
• Significant upgrades to an existing property

Capital expenses can create operating expenses. For instance, while buying equipment is a capital expense, any money you spend repairing or maintaining that equipment is an operating expense.

The most basic way to track expenses is to remember the categories we’ve provided, work out which costs fall into which category, and then enter them into either a spreadsheet or a financial software tool. There are a few ways to make this easier, though.

This is the golden rule of tracking expenses. All of your purchases should come with a receipt of some description, and keeping a record of these receipts will make tracking expenses much easier. Even if you get a paper receipt when you keep digital records, financial software tools like Countingup include receipt capture tools that let you keep a digital copy.

Be sure that you understand what the difference is between an invoice and receipt.

Having a business account means that all of your business-related money can be kept separate from your personal funds. It also means that you’ll have an easier time tracking your business expenses, as you’ll have a separate transaction history for your business account.

Having a business account is also useful as you can easily connect it to any financial management software you might use. For instance, Countingup is a business account with built-in accounting software. It has special features to help with tracking expenses, automatically categorising them into HMRC-approved categories, and the ability to capture and record receipts digitally. 

Even if you manage to keep every receipt you’ve ever received, it’s not very useful if you’ve got years of disorganised files and spreadsheets. It’s a smart business decision to review and organise your expenses consistently, so try to do it at the end of each month. 

To do this sort of review, create a spreadsheet or Word document and put your expenses into one of the three categories. Include the amount spent and the reason for the expense, and remember to date everything as well. Doing so means you’ll be able to see how much you spent on each type of expense in a particular month.

The primary reason to track your expenses is to claim them back as business expenses when filing taxes. For instance: if you earn £40,000, and claim £10,000 worth of expenses, you will only have to pay tax on £30,000 of your earnings. 

Claiming business expenses can reduce your tax bill greatly, so remember to look into what business expenses you can claim while doing taxes. While many business expenses come from operating a company out of a business-specific building, there are also expenses you can claim while working from home.

Accounting and expense tracking for your business can be time-consuming. This is why thousands of business owners across the UK use the Countingup app. 

It’s the two-in-one business account and accounting app, that provides you with automatic expense categorisation, and receipt capture reminders so that you don’t forget to keep a digital copy of your receipts. 

With more features like invoicing on the go tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more and start your three-month trial here.