Expense trackers are an accounting time saver. The benefits are wide-ranging, from helping employees organize expenses, to getting reimbursements out promptly, to seamless monthly reporting for your business. This is why you need an expense tracker tool.
In this article:
- What are expenses?
- Why do I need to track expenses?
- Best expense tracker tool for business
- How to set up Expensify + Xero
What Are Expenses?
Expenses are costs that incur for the betterment of company operations. The IRS defines an expense as an ordinary or necessary business-related expenditure. An ordinary expense is a common and accepted cost in your trade or business. A necessary expense is helpful and appropriate for your trade or business.
If your spending does not meet the ordinary-necessary criterion it won’t qualify for a deduction. Common items that should be tracked are employee travel costs, meals, office supplies.
Why Do I Need To Track Expenses?
Good expense tracking keeps everybody happy—you, your employees, and the government. Accurate record-keeping lets you know how profitable the business is by giving you a window into your spending.
For Example: you spend X amount of money sending an employee to a conference for new leads. That figure is compared to the amount invested in employee travel expenses, to gauge the profitability of the conference.
It’s no secret that employees appreciate timely paybacks. Having a transparent method for expense submissions takes the guesswork out of reimbursements. Not to mention, continuously monitoring expenditures leaves a clear paper trail for tax time and informs your taxable income.
How Often Should I Record Expenses?
Making a habit of recording expenses immediately and running expense reports monthly is a good cadence. This assists year-end reconciliation reporting, if there is an error in the record you can easily amend it. Reconciling old bills and receipts during tax season eats up time and details are sure to be missed.
Some small businesses with minimal costs can get away with less. At the bare minimum have an expense recording session once a month. This will help you create clean financial statements for quarterly reports.
Tips For Choosing An Expense Management App
Traditional expense tracking was time-consuming a ton of receipt copies, and endless filing. Most companies are digitized now especially hybrid/remote companies. A simple tool that allows a team to login from any location and perform financial updates, is critical for the contemporary office.
Consider these items when you are choosing an expense management app:
What will integrate into my accounting system?
Do I have international expenses?
How many team members need access?
Should I get a phone and/or desktop app?
How much data storage will I need? (Pro Tip: factor enough to save documentation for 7 years)
What Do I Need To Do Before I Get An Expense Management App
Every expense tracker is different. The key is to look into whether it will fit within your company’s existing financial framework. In general, you should do this before adding an expense management app.
1. Have A Business Bank Account
If you haven’t set up a separate bank for your company, it is a good idea to do so. This will help you distinguish between personal and business expenses. That way, your accounting software can connect with your bank feed and better perform automated reconciliations.
For expense tracking tools a business bank account is essential for matching purchases and enabling automated employee reimbursements. If you haven’t opened a business account yet select a common banking provider. It simplifies setup down the road when integrating accounting software.
2. Get Accounting Software
If you don’t have an accounting system, now is the time. We can’t stress enough how easy it is to have everything in one place. Managing all aspects of your business in an intuitive system helps at the end of the year when financial data is transferred to taxes.
The goods are all in the type of package you choose. Many accounting and bookkeeping tools have some native expense functionality. Check to see if this will work for your company’s needs or if you can link a platform for advanced features.
3. Choose Your Accounting Method
Does your business run on the cash or accrual method of accounting? Decide which method you would like to track your expenses because some online accounting functions only serve the cash method or the accrual method.
With the cash method, you are recording a business cost as cash changes hands. With the accrual method, it has to be reconciled to revenue in the same period as when it was earned.
Best Expense Tracker Tool For Business
Expensify, expense reports that don’t suck.
We recommend this tool because it is compatible with most small business accounting setups. They have shaped a simple user interface with capabilities to pull from popular industries. Business sites like Xero, Gusto, Uber, Kayak, Hotel Engine, and much more connect with Expensify.
Companies with a busy travel itinerary get convenient expense reporting with Expensify. Employees can submit their travel expenses to employers and employers can reimburse them with a tap.
Employees are equipped with Expensify credit cards to use on trips. An AI photo scanner is also available, to add in paper and online receipts. Even better, transactions can be synced directly from an integrated business app ex: Lyft.
How To Set Up Expense Tracking With Expensify + Xero
Here is a step-by-step tutorial to launch your Expensify account and link to a Xero accounting system.
1. Set An Email To Manage Expensify
Use a generic accounting department email, that way you avoid passing admin info from one person to the next during turnover—provide a real email though.
3. Connect Expensify To Xero
- Navigate to Settings > Policies > Groups > [Policy Name] > Connections > Xero
- Select Connect to Xero > Click Create a New Xero Connection
Note: It is important to have your chart of accounts in Xero prepped for expense categories in Expensify. If you sell in multiple currencies, you need to have multiple currencies set up in Xero before connecting. In Expensify, choose the currency that you use to run your business, Xero will handle exchange rates when expense reports sync.
4. Set Up A Business Bank Account To Reimburse Employees
- Log into your Expensify account > Go to Settings > Account > Payments > Click Add Verified Bank Account > Click Log Into Online Bank Account > Click Continue when you hit the Plaid screen
- Choose your bank from the list to connect your business bank account using the online banking credentials or add a bank account manually.
- Note: this bank account is also used to settle Expensify Card activity.
5. Setup Company Cards (corporate or company-issued credit cards)
- Go to Settings > Domains > [Domain Name] > Company Cards > Click Import Card
- Select your card issuer and input the login credentials
- You will then assign accounts to employees, and set a start date for expenses to appear in their account (see step 7 for more info).
6. Enabling The Expensify Card For Team Members
- Make sure your Business Bank Account is validated
- Log into your Expensify account > Head to the Inbox
- On the task that says “Introducing the Expensify Card” click Enable my Expensify Cards
- Wait for an email from Expensify for the next steps
- Note: Cards will eventually be sent out and you can set limits for your employees and reconcile expenses.
7. Assign Expensify Cards
- After connecting your company cards with Expensify, you assign each card to an employee.
- To assign cards go to Settings > Domains > [Your domain] > Company Cards.
- Select the correct feed in the drop-down list of the Company Card section
- Select the new cardholder (they need to have an email with the same domain as the one you use for Expensify)
- Select the Card > Set the Start Date for Use > Click Assign
- Note: Employees get digital cards while they wait for a card in the mail.
Expensify Makes Your Life Easier
With the right accounting setup, your finances are stress-free. That includes having Expensify in your toolbox for expensing tracking, reimbursements, and seamless reporting. With chain of command settings to send and spend money, tedious accounting tasks are less intrusive on your day.