Step-By-Step Guide to Keep Track of Business Expenses

Running your business’s day-to-day activities can make you easily forget to keep track of all business expenses. And that’s a big problem.

Why? Because keeping track of business expenses helps you see exactly how the business is doing. You can analyze your finances to know what to invest in and when to pull back.

What exactly are business expenses, which ones to track, why you should track them, and how to keep track of business expenses? This is the deep dive you wanted.

Importance of tracking business expenses.

A strong, streamlined, automated system is the best way to keep track of business expenses. It’s empowering and, in today’s business climate, essential.

So here’s why it’s of utmost importance:

• Makes it easier to allocate funds: Tracking business expenses can help you determine how to allocate funds more easily, including funds for travel, office supplies, or employee bonuses.
• Helps simplify the tax process: Establishing a method for tracking business expenses can make it easier to apply for a tax deduction since it allows you to list all the business expenses in a clear format.
• Streamlines bookkeeping practices: Tracking business expenses can be an especially useful way to ensure accuracy when creating and maintaining financial records, which is often crucial for bookkeeping.

How to track business expenses.

Setting up a system for tracking expenses.

Gone are the days when “good enough” was acceptable for keeping track of business expenses. A better solution has emerged with expense management software. 47% of firms are currently facing data entry errors when managing non-payroll spend. Roland Berger, an international consultancy, analyzed data from a multinational professional services firm with 12,000 active expense submitters.

The study compared advanced expense management software with manual processes and older systems, revealing significant time savings, productivity enhancements, and return on investment (ROI) across different platforms. It concluded that companies can save more than 30,000 hours annually by adopting digital expense software instead of relying on spreadsheets or outdated digital systems.

With streamlined tools like Airbase, employees simply photograph receipts, allowing the software to automatically populate expense claims with essential details. This process takes just a few seconds, a stark improvement over the 61 seconds typically required using Excel or older software.

Expense management software drastically reduces approval and processing times for each expense, typically averaging around 35 seconds per transaction. In contrast, using spreadsheets or older systems like physical ledgers can take over 130 seconds.

These time savings highlight the significant benefits of implementing expense management software. Productivity increases by more than 70%, yielding long-term advantages beyond mere time efficiency. In addition to tangible benefits, digital expense management reduces employee frustration by streamlining submission and reimbursement processes, with payback periods falling to under two months. Finance teams also gain enhanced data analysis capabilities for better-informed decision-making, while leaders retain flexibility to adapt processes for scaling operations.

Setting up a system of tracking expenses comes in handy. There’s no way around it, relying on outdated systems can significantly impact costs, exposing vulnerabilities to policy breaches and fraud risks. However, its most substantial effect is on productivity, with the GBTA noting that an average expense report can take 20 minutes to complete.

Source: Survey by GBTA Foundation and HRS
533 travel managers globally surveyed in Sep-Oct 2015;
Time and cost for an expense report for a business trip with overnight stay

To put this into perspective, consider the arithmetic. If one employee submits 10 expense reports monthly, that totals over 3 hours of work, equating to 40 hours annually — essentially a full work week. Scale this across 100 employees, and the time commitment rises to approximately 400 work hours per year.

Implementing an advanced expense management system is the optimal solution to reduce these hours by streamlining processes and saving valuable time. The question remains: how much time exactly can be saved?

5 key reasons for the importance of tracking business expenses.

Implementing and sticking to a company expense policy offers several important advantages for your business. Here are five key benefits:

• Streamlines expense reimbursement process: A clear expense policy saves time by simplifying how employees file for reimbursement. They understand what expenses are covered, which require receipts, and how to submit claims, reducing delays and minimizing back-and-forth with the finance team.
• Prevents unnecessary expenses: An established policy prevents employees from incurring unauthorized or unnecessary expenses. Clear guidelines, such as requiring receipts for expenses over a certain amount, discourage frivolous spending and help control costs.
• Builds trust: Having a transparent expense policy fosters trust between employees and the finance team. Employees feel confident that their expenses will be reimbursed fairly, while the finance team gains visibility into spending, ensuring compliance and trustworthiness.
• Maximizes tax benefits: An expense policy ensures compliance with tax regulations, enabling your company to maximize deductions and rebates on legitimate business expenses. This helps avoid unnecessary taxes and penalties related to improper expense claims.
• Prevents fraud: A robust expense policy safeguards against fraud. By requiring receipts and verifying expense claims, the policy reduces the risk of employees exploiting reimbursement processes for personal gain, protecting company finances and integrity.

Categorizing business expenses.

Properly categorizing business expenses isn’t just about tax preparation — it lays the groundwork for future growth and effective financial management. Each expense must be documented in a way that facilitates quick assessment of finances, ensures liquidity, and maximizes tax benefits.

Even if you feel your business is small or uncomplicated, establishing basic categories can benefit purchasing decisions, budgeting, and annual tax planning.

Business expense categories serve as organizational “buckets” for expenditures, offering several advantages:

• Providing visibility into spending patterns.
• Facilitating budget allocation for department heads.
• Identifying areas for efficiency improvements.
• Simplifying tax preparation by grouping deductible expenses.

While many expenses fit into standard categories, customizing your chart of accounts to include all transactions and income sources, no matter how infrequent, provides deeper insights into spending habits.

Common categories include:

• Payroll: Covers wages and benefits, crucial for managing labor costs.
• Benefits: Encompasses various employee perks like insurance and retirement contributions.
• Rent & utilities: Essential for maintaining business operations and often tax-deductible.
• Marketing & advertising: Focuses on promoting business growth through various channels.
• Office supplies: Includes everyday items necessary for workplace functionality.
• Meals & entertainment: Covers expenses related to client meetings and employee morale.
• Travel: Includes costs incurred during business trips, such as accommodation and transportation.
• Business vehicles: Tracks expenses associated with company-owned or leased vehicles.
• Additional services: Outsourced functions like legal or cleaning services essential for operational efficiency.

Proper categorization ensures clarity for both employees recording expenses and finance teams using accounting software. Implementing tools like BILL Spend & Expense simplifies expense management, allowing shared responsibility for accurate categorization and efficient reporting.

This structured approach not only supports day-to-day financial operations but also optimizes tax filing and compliance with IRS regulations, maximizing deductions and minimizing financial risks.

Recording expenses.

Best practices for recording expenses daily.

• Use technology: Utilize expense tracking apps or software to simplify the process. Apps like Airbase, Expensify, Mint, and QuickBooks can automatically categorize expenses.
• Categorize expenses: Immediately categorize expenses into predefined categories (e.g., travel, meals, office supplies) for easier tracking and analysis.
• Keep receipts: Immediately take a photo of receipts and attach them to the corresponding expense entry in your tracking app. With Airbase, you can take a photo of your receipt using the Airbase mobile app.
• Automate where possible: Set up automatic payments and direct deposits to reduce manual entry. This streamlines the process by automating data entry, eliminating manual paperwork, and reducing the chances of errors or missing information. It enforces policy compliance, reduces the need for manual review, improves accuracy, and provides real-time visibility into expenses, so managers can monitor spending trends, identify potential issues, and make informed decisions.

Importance of keeping and organizing receipts and invoices.

• Accuracy: Receipts and invoices provide proof of purchase and ensure that expense records are accurate and verifiable.
• Audit compliance: Organized receipts are crucial during audits to substantiate claims and validate expenses.
• Tax deductions: Proper documentation is necessary to claim tax deductions and avoid penalties.
• Financial analysis: Receipts and invoices help in analyzing spending patterns and making informed financial decisions.
• Dispute resolution: Receipts can be used to resolve disputes or discrepancies with vendors or service providers.
• Budgeting: Detailed records help in creating accurate budgets and tracking adherence to financial plans.

Automating expense tracking.

Implementing automated expense management systems offers numerous advantages, transforming the way companies oversee and manage their business expenses. The top 5 reasons you should link software to your business bank accounts:

• Direct integration: Expense tracking software can be directly linked to business bank accounts and credit cards. This integration allows the software to automatically import and categorize transactions.
• Automatic categorization: Advanced algorithms in these software solutions can recognize and categorize expenses based on predefined rules and historical data. For example, a payment to a known office supply store can be automatically categorized under “Office Supplies.”
• Real-time updates: Transactions are recorded in real time, ensuring that your expense records are always up to date without the need for manual entry.
• Notifications and alerts: Automated systems can send notifications or alerts for unusual transactions, duplicate entries, or potential errors, helping to identify issues immediately.
• Reporting and analytics: Integrated software can generate real-time reports and analytics, providing a clear picture of your financial status at any moment.

But it is especially useful when it comes to accuracy and cost-savings.

Automated expense software uses technologies like optical character recognition (OCR) to extract data from receipts, reducing the need for human input. This increases the accuracy of expense reporting and minimizes the risk of miscalculations and mistakes.

This technology eliminates manual data entry, repetitive tasks, and paper-based processes. Employees can easily submit expenses and the system will automatically process, categorize, and reimburse them. This streamlines workflows, saves time, reduces errors, and speeds up the reimbursement process.

An expense management platform offers real-time insight into expenses, providing a comprehensive view of spending patterns, trends, and budget usage. Advanced reporting and analytics identify areas of excessive spending, cost-saving opportunities, and potential policy violations. This visibility enhances decision-making and optimizes expense management strategies.

Automating expense management leads to cost savings in multiple ways. It reduces manual processes and paper receipts, cutting administrative costs. It frees the accounting team to focus on more valuable tasks. Consistent visibility into spending patterns also helps negotiate better vendor contracts and identify cost-reduction opportunities. Automation prevents fraud and errors, protecting the organization from financial losses and improving cash flow.

Tool options for streamlining business expense tracking.

Tool options for streamlining business expense tracking.

Accounting software options.

1. Airbase.

Airbase’s procure-to-pay solution combines the ability to handle the complex approval and accounting workflows needed by these organizations with an easily adopted user experience. The collaborative approach to workflows includes all stakeholders — finance teams, employees, IT, Legal, leadership, and suppliers worldwide. P2P processes help ensure compliance and visibility into company spending by key stakeholders before it happens. Airbase is a suite of products that consists of Guided Procurement, AP Automation, Expense Management, and Corporate Cards. Users can choose all or part of the suite.

• Expense management: Automated expense capture and reporting with OCR technology.
• Corporate cards: Real-time tracking and control of corporate card spending.
• Touchless accounts payable: Automated bill payments and vendor management.
• Integrations: Airbase offers integrations to sync its data to a company’s ERP and other adjacent business systems, including HRIS, CLM, and SSO. Seamless integration with accounting software like QuickBooks, Xero, and NetSuite.

2. Certify.

Certify simplifies the expense reporting process.

• Receipt scanning: OCR-based receipt scanning for automatic expense creation.
• Mobile app: Mobile app for capturing receipts and managing expenses on the go.
• Policy compliance: Built-in policy compliance and approval workflows.
• Integration: Integrates with major accounting systems like QuickBooks and NetSuite.
• Reporting: Detailed reporting and analytics for expense management.

3. Concur.

Concur, a solution by SAP, provides end-to-end solutions for managing business expenses.

• Expense capture: Automatic capture and categorization of expenses.
• Travel booking: Integrated travel booking and expense tracking.
• Policy compliance: Built-in compliance features to enforce company policies.
• Reporting and analytics: Comprehensive reporting tools for expense analysis.
• Global support: Multi-currency and multi-language support for global businesses.

4. ExpensAble.

ExpensAble offers solutions for both small businesses and large enterprises.

• Receipt capture: Easy receipt capture and attachment to expenses.
• Expense approval: Customizable approval workflows for expense reports.
• Policy enforcement: Automated enforcement of company expense policies.
• Integration: Integrates with various accounting and ERP systems.
• Analytics: Comprehensive analytics and reporting tools.

5. Expensify.

Expensify simplifies expense reporting and reimbursement processes. Key features include:

• SmartScan technology: OCR-based receipt scanning and automatic expense categorization.
• Expense reports: Easy creation and submission of expense reports.
• Integrations: Integrates with accounting software such as QuickBooks, Xero, and NetSuite.
• Mileage tracking: Automatic tracking of mileage expenses for business trips.
• Mobile app: Full functionality available on mobile devices for on-the-go expense management.

6. QuickBooks Online.

QuickBooks Online offers powerful expense tracking features.

• Expense categorization: Automatic categorization of expenses based on vendor and transaction type.
• Receipt capture: Photo capture of receipts using the mobile app.
• Bank integration: Direct integration with business bank accounts for real-time expense tracking.
• Reports: Detailed expense reports and financial statements.
• Invoicing: Integrated invoicing and payment tracking.

7. Zoho Expense.

Zoho Expense automates and streamlines expense reporting.

• Automated expense reporting: OCR-based receipt scanning and automatic expense creation.
• Multi-currency support: Supports expenses in multiple currencies for international businesses.
• Policy compliance: Customizable rules to ensure compliance with company policies.
• Integrations: Integrates with Zoho Books, QuickBooks, and other accounting software.
• Mobile app: Fully functional mobile app for managing expenses on the go.

Mobile apps for expense tracking.

Mobile apps have simplified expense tracking one step further by keeping track of business expenses on the go. The Airbase mobile app brings streamlined spend management to the palm of your hand. Users can approve, execute, and track spending on their mobile device.

Other mobile apps for expense tracking include Expensify, Zoho Expense, QuickBooks Online, and SAP Concur.

Other financial management tools.

A global survey by Deloitte revealed that only 20% of respondents use tools other than spreadsheets for forecasting, and 30% reported that their current planning and forecasting rely on past events rather than future projections.

Achieving strategic goals and enhancing performance is crucial for the growth of any company, with budgeting and forecasting being key processes in this endeavor.

Nevertheless, many organizations continue to face challenges with outdated, inefficient, and inaccurate business planning methods that hinder their ability to adapt to changing market conditions and demands.

Airbase’s spend management and spend analytics empower companies to help in just that — future projections.

A few other financial management tools include Sievo, Vendr, Mint, and Tiller Money.

Best practices for tracking expenses.

Expense management systems streamline the processing, reimbursement, and auditing of employee expenses. Expenses such as travel and entertainment often require multiple steps for approval, validation, and auditing, which can drain financial resources.

Implementing expense management best practices ensures these resources are used efficiently, allowing for greater savings for the company.

The Global Business Travel Association reports that processing a single expense report takes about 20 minutes and costs an average of $58. Moreover, over 19% of expense reports contain errors, which require an additional 18 minutes per report to correct.

This represents a significant amount of time spent on handling reports — not even including the time needed to create them.

Expense management best practices help mitigate these issues by addressing common challenges such as cost leakages and expense fraud.

Consistency and accuracy.

Maintaining regular and precise expense tracking is crucial for effective financial management. Consistency in recording expenses helps ensure that all transactions are documented accurately, reducing the risk of errors and omissions. By adopting a routine for daily or weekly expense entry and verification, businesses can avoid backlogs and discrepancies, which contributes to more accurate financial reporting and budgeting. Implementing automated tools can further enhance accuracy and efficiency by minimizing manual data entry and automatically categorizing expenses.

Separating personal and business finances.

Keeping personal and business expenses distinct is vital for clear and accurate financial management. Mixing personal and business transactions can lead to complications in financial reporting, tax preparation, and expense tracking. It is essential to use separate bank accounts, credit cards, and financial tools for personal and business purposes. This separation simplifies accounting, ensures compliance with tax regulations, and provides a clearer picture of the company’s financial health. It also reduces the risk of potential audits and discrepancies that may arise from combined financial activities.

Regular financial reviews.

Conducting regular financial reviews is a key practice for comprehensive financial management. Setting specific intervals — such as monthly or quarterly — to review financial activities helps in assessing the company’s financial health, tracking expense trends, and identifying potential issues early. Regular reviews allow businesses to adjust budgets, correct errors, and make informed decisions based on up-to-date financial data. This practice also aids in evaluating the effectiveness of expense management strategies and ensuring alignment with financial goals.

Key takeaways for expense mastery.

Managing expenses within an organization is a complex and demanding task, requiring significant human effort and financial resources. This challenge is further compounded by the need to track current expenses and forecast future spending. It can indeed be overwhelming.

Fortunately, many of these issues can be addressed with an expense management system like Airbase. To ensure that your spend management system is both effective and accurate, here are some tips to enhance your strategy:

Actionable tips for enhancing expense management strategies.

• Implement automation: Use expense management tools like Airbase to automate expense tracking, approval processes, and reporting. Airbase offers real-time tracking and integrates seamlessly with other accounting systems, streamlining financial management and reducing manual work.
• Establish clear policies: Develop and enforce clear expense policies to guide employees on allowable expenses and approval processes. Automated systems can help ensure compliance and flag any deviations from established policies.
• Leverage technology: Adopt tools that offer advanced features such as receipt scanning, automatic categorization, and integration with accounting software. This technology reduces manual data entry and enhances accuracy in expense tracking.
• Regular training: Provide regular training for employees on expense reporting procedures and the use of expense management tools. This helps ensure that all staff are familiar with the process and can contribute to accurate expense tracking.
• Monitor and adjust: Continuously monitor expense reports and financial data to identify areas for improvement. Use insights from expense management tools to adjust budgets, optimize spending, and address any issues promptly.

If you want a platform that will take care of every business expense for every person in your company, Airbase is the platform for you. Book a demo.