Common mistakes when tracking business expenses

Quick insights

• Business expenses are costs associated with running a business.
• Examples of business expenses include travel, gas mileage office supplies and rent.
• Expense categorization issues and other errors may result in accounting and bookkeeping discrepancies.

Whether you’re a sole proprietor, independent contractor or small business owner, it can be important to properly track and categorize your business expenses. Even small mistakes can lead to accounting issues.

For example, missing receipts or bookkeeping errors can create an inaccurate picture of a business’ cash flow. This can snowball into further issues, like creating budgets that don’t align with a business’ current financial situation.

Read on to learn more about common business expenses, plus common mistakes small businesses owners may make during the expense tracking process.

Understanding business expense categories

Each expense incurred on behalf of a business falls into a different expense category, and some expenses may be considered tax-deductible by the IRS. A few examples of business expenses include payroll, travel expenses, employee benefits and office equipment.

Most companies track this information via business expense reports. These reports include detailed information about any purchases made on behalf of a business. They help employers monitor overall spending, create accurate budgets and save information for recordkeeping purposes.

Note that business expenses may differ between businesses. For more comprehensive information regarding small business expense tax rules, refer to the IRS’ guide to business expense resources.

Examples of business expense categories

Because business expenses must be related to running a particular business, they are likely to vary between companies. Some common business expense categories may include:

• Travel expenses
• Marketing and advertising costs
• Postage/shipping
• Phone
• Internet
• Employee/contractor wages
• Employee benefits
• Insurance (for both the employee and business)
• Office rent or lease
• Utilities
• Office supplies
• Moving costs
• Business events
• Client retention efforts

Common business expense tracking mistakes

In an ideal scenario, a business would have zero mistakes when tracking business expenses. But with all the day-to-day expenses it takes to run a business, it’s only natural for a mistake to pop up here and there.

Below are a few common issues to watch out for to potentially help you stay more organized with your business’s finances:

Incorrectly categorizing expenses

If you aren’t sure what a business expense should be categorized as, it may be tempting to include your best guess. However, it may be wiser to become familiar with correct expense categories.

This is because properly categorizing expenses can help you track your spending in specific categories. This, in turn, may allow you to create more realistic budgets and update budgets as needed.

Failing to save receipts

Saving receipts can help businesses keep proper records of expenses for bookkeeping and accounting purposes. Many businesses choose to use accounting or expense management software to keep digital copies of receipts. Employees can upload images of receipts, which are then stored in the application.

Failing to reference your bank account

It’s often considered a best practice to cross-reference your business bank account and business expenses at the end of every month. This way, you can catch small errors on an ongoing basis instead of in a rush at the end of each year.

If you work with several other people, it may be a good idea to assign this responsibility to one person. Each month, they can compare expense reports to bank statements and rectify categorization mistakes or other accounting issues.

Mixing business and personal expenses

Freelancers, sole proprietors and small business owners who don’t have business credit cards may be tempted to mix business and personal expenses on one account. While it may seem like a simple option, it can cause issues. For example, charging a personal expense to a business credit card uses available business credit. This means there might be less credit available for business-specific purchases. Using business and personal credit cards interchangeably can also create challenges for tax purposes.

Even those who do have business credit cards may want to consider avoiding this practice. Using a business credit card for personal expenses is a violation of terms for many major credit cards. This means making personal purchases could result in fees or even account termination.

Forgetting small purchases

Say you meet with clients for coffee or lunch a few times a month. While these may be smaller purchases, they’ll add up over time. It can be helpful to keep your receipts and keep record of any business-related expenses.

Passing up professional help

Even seasoned business owners likely need assistance with their accounting from time to time. Whether you’re a longtime entrepreneur or began a business this year, it can be helpful to consult a tax or accounting professional, especially before filing your taxes.

In summary

Being proactive about business bookkeeping can help businesses organize their financial records and potentially stay on track for future finance goals. To help avoid small mistakes due to human error, consider using an expense report template or expense management software that generates business expense reports and details automatically.