As the saying goes, you’ve got to spend money to make money, and even the most basic business operation will incur expenses.
Thankfully, many of those expenses will be tax deductible, meaning you can offset them against the income your business earns reducing the overall amount of tax you’ll need to pay. But to make the most of this requires good management of your business expenses.
Understand the basics
It’s fundamental to gain a good understanding of what actually count as tax deductible business expenses, whether they’re associated with the day-to-day running of your business, or more one-off asset purchases (the IRD publishes comprehensive information on this).
Once you’re clear on what you can claim for, keeping good records is key – not only for tax purposes, but to ensure expenses are being kept in check for the overall health of your business.
That means keeping invoices or receipts for every expense incurred, and keeping accurate and up-to-date records. Monthly record keeping, as regular practice, is advised, but if you’re noticing certain expenses spiking, keeping on top of these even weekly can help pinpoint where excessive expenditure might be occurring. Keeping records up-to-date will also dramatically reduce your stress come end of financial year.
Is it time to outsource?
This all takes time. Whatever methods you’re currently using to track expenses, it pays to also track the time it’s taking – both for you, and any employees you have. If time is being spent each month on these activities that could be more profitably spent focusing on your core business, it may be worth outsourcing some tasks to an accountant or bookkeeper. Good professionals will have the skills and experience to do this work much faster than a layperson, and have a thorough grasp of what expenses can and can’t be claimed.
There’s also a growing array of digital tools to help business owners manage their expenses more efficiently. Many small business owners now use cloud-based accounting systems like Xero and MYOB that have specific tools or add-ons that offer paperless and real-time expense tracking solutions as an alternative to traditional spreadsheets.
Given many expenses are incurred on the go there’s also a proliferation of mobile apps that can help. Expensify is one example that offers users an online receipt to reimbursement process and other features like mileage tracking.
It’s also a legal requirement to retain a record of all business expenses for at least seven years, so digital solutions like Paypr, which allow users to receive receipts directly to their phone, can offer a tidier alternative to the ‘receipts in a shoebox’ approach.
Draw the line
Lastly, ensure you have ways to keep your personal and business spending separate. Reconciling becomes much more time consuming if you regularly have to pick through individual receipts to eliminate personal purchases and, importantly, claiming personal expenses for your business actually counts as fraud.
Using a business credit card solely for business expenditure can help – and if you take advantage of the no-interest period it can have the added bonus of helping you manage cashflow.