Micro Key’s 5-Minute Read – Six Consequences of NOT Tracking Expenses
If you are like most business owners, tracking expenses may not be at the top of your favorite tasks to manage. As a business owner, I feel the same way! While it is not the most exciting aspect of business operations, it certainly is one of the most important. Not tracking expenses or NOT tracking expenses in a comprehensive accounting system can have devastating long-term effects on a business. Here are a few mistakes to avoid.
#1. Mistaking Paying Bills as Tracking Expenses
Paying Bills does not equate to tracking expenses. If as a business owner, you are only using the check writing piece of your accounting software, you are paying bills not tracking expenses. Tracking Expenses demonstrates how much money your business is spending per category to type of expense. You probably know that profitability is calculated by revenue minus expenses. Expense Tracking versus paying billings provides an accurate analysis of your business’s true cost to provide your goods and services by category.
#2. Not Paying Bills on Time or Missing Payments
Most accounting software programs give you the ability to enter Bills, Pay Bills Electronically and keep track of due dates. If you are just using the check writing piece of your software, you are relying on a manual system of remembering or writing reminders for due dates. Manual bill pay creates the risk of amassing more debt for missed payments and late fees which can increase expenses upwardly up to 20%. While this may not seem like a big monthly number, over time these fees add up and impact the bottom line and profitability.
#3. Harder to Save for “Big” Purchases
Without a clear picture of finances and the added risk of operational expenses costing up to 20% more inclusive of late fees, you are missing opportunities to save, even a little amount every month toward financial goals. If you are NOT tracking expenses, financial goals are purely theoretical!
#4. Struggle to Appropriately Price Goods and Services
If you don’t know how much it cost you to provide goods and services, it is very difficult to appropriately price the goods and services you sell. How much does inventory for each service call or job cost? What are the labor costs? Poor pricing impacts your business’s profitability.
#5. Missing Key Business Health Check Indicators
Tracking expenses provides the ability to analyze Operating Income (total of a company’s profit after subtracting expenses and recurring and regular expenses) versus Revenue (total amount generated for the sale of goods and services). The disparity between the two can speak volumes about the health of a company’s financials.
#6. Unexpected Expenses Can Throw You and Cost MORE Money
One perk of tracking expenses is financial transparency and the ability to save, even a small amount of money on deck for unexpected expenses. If you don’t have an emergency money fund, you may have to secure financing for unexpected expenses that will cost additional money due to finance charges.
Prioritize Tracking Business Expenses
As this blog demonstrates, NOT tracking expenses can have major consequences on your company’s financial health and profitability. Amidst the hustle of running a small, medium, or large business, a boring task like expense tracking is often easy to ignore. Tracking expenses regularly gives you insight into the most up-to-date financial data. Using this, you can analyze your company’s success, identify weaknesses, and plan strategically. Micro Key’s AutoBiller Plus is up for the task! See it in action!
Written by: Victoria Ferro