Why tracking small business expenses matters
82% of small business failures are caused by cash flow problems. Whilst this may sound disheartening, it is not surprising given that 61% of small businesses reported that they neglect to track expenses and create financial budgets.
The good news is that cash flow shortages can be prevented. By learning how to track your business expenses. Moreover, learning how to track business expenses will help you:
1. Prevent wasteful spending
Keeping records of your business expenses will help you identify and eliminate any wasteful spending, potentially saving you thousands of dollars each year.
2. Forecast Future Expenses
Financial forecasting is a type of reporting used to predicts future financial scenarios. It is particularly important for businesses to have accurate financial forecasts so that you can benchmark your current financial performance. Doing so will ensure that you have a plan in place should an unfavorable financial scenario arise.
3. Maximize your annual tax return
Your annual tax return is the amount of money you are eligible to claim back from the Australian Taxation Office. Depending on your business type, business owners are able to increase their tax return by claiming back GST. Keeping accurate records of your small business expenses is the first step in maximizing your annual tax return.
4. Record accurate financial statements
Financial statements reflect your business’s financial activities and are often used to make strategic financial decisions. Having accurate and reliable financial reports helps you make better financial decisions and prevent costly mistakes.
How do Australia’s best CFO’s track small business expenses?
At DiviPay, we’re lucky enough to work closely with Australia’s leading small business CFOs. Here’s what they do to track their small business expenses:
They forecast future spending
Australia’s leading CFOs create forecasts of future expenses every 6 months. Creating forecasts sets the financial north star that guides a business’s financial targets. Forecasting forces CFOs to predict future areas of investment and confront potential cash-flow shortages. This then allows the business to plan and take advantage of the situation before it happens.
They breakdown forecasts into budgets
CFO’s create budgets from their financial forecasts. These budgets allow them to monitor and control day-to-day spending and ensure that the business is financially healthy.
They use payments software to track spending in real-time
A CFO’s role has evolved over the years. CFOs are now expected to be part data analyst, part strategist and part systems architect. In order to keep up with the growing role, the best CFO’s use cloud payments software like DiviPay to have the right payment data on hand which equips them to make strategic financial decisions quicker.
They use expense management software to automate data entry
CFOs also use expense management software to automatically collect important but time-consuming expense data like GST, tax invoices, and GL codes. This saves them hours which opens up time for the CFO’s to focus on a strategic activities like forecasting, budgeting, and process improvement.
They routinely “eyeball” spending
The best CFO’s have a rhythm in place to regularly scan through the business’s transaction history for a day, week, or month. Setting up a routine to track the business’s transactions will often include the use of cloud accounting software. Eyeballing business spending ensures that any unusual spending is identified and eliminates and helps track the business’s progress against budgets.