Cash will always be one of the biggest problems companies face. You can’t just throw up a product in a store and expect it to sell. When 38% of businesses fail because they run out of cash, you need to make enough money to make a profit and pay expenses.
Understanding your business expenses is vital if you want to run a company that stays profitable. Below are the reasons why you need to pay attention to your company expenses.
Understand Your Deductions
The good thing about spending money on business items is that it reduces your company’s net profit. This, in turn, reduces the total amount of taxes you owe.
But you’ll need to know your business expenses and verify they are legitimate with business receipts to take advantage of those deductions. If you don’t track your business expenses, there is no way for you to verify this information, and you will end up paying more business taxes each year.
Control Your Budget
A company without a budget is hard to control. Everyone has unlimited funds to spend on whatever they believe makes sense.
The problem is that spending too much money is easy — especially if a purchase provides some value. No budget also makes people take more risks on things that don’t matter as much.
Understanding your expenses is vital for setting and controlling spending. Each department will have a maximum amount of money to spend each month — meaning they must focus on the expenses that matter most and will lead to the most growth.
Depending on your business model, your employees may expense some of their business expenses with their personal cards and cash. You often see this when people have to travel for business — they have lodging, food, and other expenses when meeting with clients.
It’s hard to know who expensed what if you don’t track expenses well. This delays in reimbursing employees the money they spend for your business.
Tracking everything will help you stay prompt with employee reimbursements. As a result, you’ll have people more than willing to travel for business.
Find Unnecessary Expenses
Seeing good cash flow is hard when you don’t understand where your money goes. You may have several automated charges you don’t need that reduce the money your company has available each month.
Whether you use an automated accounting program like hedgi.com or handle accounting manually, dedicate company resources to tracking every expense. Regularly audit those expenses and cut the ones that don’t make sense for business growth.
Track All Your Business Expenses
With how many businesses fail because of cash problems, the last thing you want is not to understand where your money goes. You can bring in as much revenue as you want — but if your expenses outpace the money coming in, your company will eventually fail.
That’s why you can’t afford not to track business expenses. Remember the things above if you’re struggling to find the motivation to handle accounting, and make sure to manage your books properly.
Of course, you’ll need more than great bookkeeping to keep your business running. Read more financial advice about business growth on the blog.