A New Davis County Entrepreneur's Starter Guide to Managing Business Expenses

Entrepreneurship is an exciting adventure. While you have the chance to become your own boss, you also have to learn all the ins and outs of managing a company. One important component of running a business worth educating yourself about is expense management. In the big picture, a thorough understanding of expenses can help you save money and boost profits. Read on for a quick guide to managing these costs, courtesy of the Davis Chamber of Commerce.

Understand How Expenses Impact Your Taxes

Understanding how expenses impact your business can help motivate you to get on top of them. Business deductions can help you save money on your tax bill. How? Your tax deductions can be written off from your annual profits. This reduces your overall taxable income for the year, meaning you'll have to pay less taxes. However, note that there are strict rules regarding what is an eligible expense, according to Oracle. If you aren't sure if something counts as an expense or not, consult a tax advisor.

Set Up a Business Bank Account 

It's important to keep your professional and private expenses separate. This will make your business bookkeeping and annual tax filing faster and easier. Ideally, you'll set up a separate business bank account for your business expenses. Common types of accounts include checking and savings. You may also want a business credit card.  When comparing accounts, look at details like interest rate, monthly fees, and overdraft options.

Make a List of General and Administrative Expenses

There are different types of business expenses. One of the biggest categories is general and administrative costs, or G&A. These are defined as fees that aren't related to your sales or products. They're often the basics that your company can't do without. Examples include office supplies and commercial rent. Employee perks like group health or life insurance plans are another example. Last but not least, to really keep a handle on your expenses, it’s important to figure out your debt-to-income ratio, as well. 

Tally Up Other Practical Business Fees

G&A costs are only one category of expenses. The other two major categories are manufacturing and investments. Software Unleashed provides a guide to calculating production costs, from materials to labor. When it comes to investments, it's important to understand what is considered a business investment—and therefore an expense—in the eyes of the ATO. Examples include employee development, marketing, and technology.

Invest in Tools to Organize and Track Your Expenses

Making a list of all your expenses is only the first step. Managing expenses is an ongoing effort. You need to track all money going out and keep all the receipts. It's advisable to digitize your expenses notes using technology such as a mobile scanning app. You have to keep all your paperwork in order to accurately report expenses when you file taxes. Plus, the ATO can request to see the documentation if you're ever audited. Fundera notes that you can also use accounting software to help categorize and track expenses.

It’s important not to overlook simple free tools that will help you manage daily business tasks more easily. Instead of relying on printing invoices and other documentation, go digital. It will save you time, money, and space. You can simply convert Word to PDF and create a digital filing system for all of your important documents.

Invest in Tools to Organize and Track Your Expenses

Figuring out business expenses may seem daunting at first. However, it will save your business money in the long term by reducing your tax bill. Use these best practices to get started, and take advantage of free tools to help get your business expenses organized.

Looking for business support in Davis County? The Davis Chamber of Commerce champions our community’s economic and cultural growth through networking, events, and advocacy. Become a member today!