If you are running your own business, chances are that you have already taken into consideration your current and projected business costs, and how this can be equated into eventual profit for your business. All business costs must be justified and should make good business sense. You can't keep shelling out money in an aggressive fashion without a definite plan of action. Keeping track of your costs will also pay off during tax season, during which a clean, correct record of costs is essential. Here are a few tips on monitoring the costs involved in your business endeavors.
- You must learn to define which costs are for the business and which costs are personal. Keep the distinction clear, and you will end up with an organized record of expenses.
- All financial aspects of your business should be separated. Inform your investors of all financial movements as well.
- Keep a separate bank account for all your business financing, and keep all the receipts from your business transactions.
- Maintain a clear balance sheet as well, including the dates, amounts and descriptions of the products or services you purchase in order to keep your business running.
- A separate checking account is also advised for businesses, to further clarify the distinction between business and personal expenditures. This will help you identify the business expenses that are legitimate for tax deduction. Businesses have the advantage over individuals in this light, as expenses are deducted before taxes are applied.
- Keep a detailed record of all expenses. Include all pertinent information for the transactions. While tracking the expenses via software is advisable and is easily accessible for reports, remember to keep a paper trail as well. If the receipts and invoices are in order, you will have it much easier time during tax time - organized records result in limited hassle on your part.
- Keep records of all postal or freight shipments as well, since certain transactions of this nature are also tax-deductible. In cases wherein your personal expenses are to be reimbursed by the business, i.e. for business trips, keep a detailed log of the information on the trip. It is not enough to record the amount and date - you must be able to identify the purpose of the business trip, and justify its impact to the business.
Keeping track of your business inventory is also a crucial part of the process. Your business will either succeed or fail based on the availability of your stocks. Costs for managing your inventory are legitimate business expenses as well. Good inventory management assures you of your business value, and is a clear indication of how your company is doing in terms of operations and financials. Log all inventory changes, re-stocks and dips in inventory. You can also analyze the trending involved, and you can predict how you should manage your inventory based on market changes and your clients' reactions to those movements.