categorizing expenses

Categorizing Expenses

Organization is critical to any business, especially when it comes to finances and more specifically your expenses. Often, you’ll see individuals purchase items on a credit card and that’s the last they see of that transaction until tax season rolls around. At that point, they begin frantically looking for receipts and proof of purchases. Expenses are nearly an everyday occurrence for a business and having the ability to organize expenses is not only important but also necessary.

For anyone who has taken the time to manually separate business expenses, then you know full well that it can be a daunting task. On the other hand, for those of you who have paid individuals to complete this task know it can be costly to have someone sort expenses, and then begin calculating numbers.

Luckily in today’s world, implementing the technology to organize expenses is quite easy. Many software companies allow the user to add categories to their accounting software. From there, when expenses are documented, the user can immediately assign them to a category, saving time and money down the road.

Aside from a taxation standpoint, maintaining accurate descriptions of expenses can help determine unnecessary expenditures. For example, if your business needs to save $1,000 in the next month, you can evaluate your expenses and begin eliminating costs such as catered lunches or unessential items. If you have unorganized expenses, you’ll be sitting and separating everything by hand, leading to wasted time and ultimately money.

Also, be sure to keep accurate expense records in the event your business or company is audited. The IRS doesn’t work with your accounting systems and this means you will be asked to generate proof of purchase for some transactions. Not only will you save time, but also stress levels will be lowered if you are able to access an organized file of expenses.

Other benefits to keeping expenses organized include knowing how to optimize credit card usage. In today’s landscape, there is a business credit card for every occasion, and knowing how to leverage your card for rewards can bring additional benefits to your business. If you find you are taking clients out for lunches and dinners, begin utilizing a card the rewards purchases for eating out. Also, if you have employees looking for reimbursement or a discrepancy, an organized expense system will allow you to handle the issue in a professional manner. Lastly, keeping personal expenses away from business expenses is critical, not only from an organizational standpoint, but a taxation and legal perspective as well.

Thanks to technology and the rapid development of smartphones, it is easier now than it has ever been to document expenses. When implementing these technologies, take the time to find what works best for your company because migrating data can be time consuming and costly.  Ensure you have the ability to customize expense categories and it fits your businesses model. Take the time now to organize so you can save time and money later.