How to Write a Business Expense Report
Whether you’re entertaining clients, traveling to meet with suppliers, or treating your employees to lunch, having your business foot the bill makes good economic sense — especially since many of these expenditures are tax deductible.
Rather than waiting until tax season or the end of your financial reporting period to tally up your incidental costs, it’s helpful to have a system in place to record any out-of-the-ordinary expenses — and, when appropriate, to have the business reimburse them.
By requiring yourself and any employees who incur business-related expenses to file routine expense reports, you’ll have the documentation you need in the event of a financial dispute or audit. Not to mention, accurately tracking your expenses will help you budget better for the years ahead.
Follow These Five Steps to Write a Business Expense Report:
1. Identify Which Expenses Require an Expense Report
Typically, routine expenses like rent, technology fees, and payroll won’t require expense reports, since these costs are known and can be budgeted for in advance. However, you’ll need a system to record all other business-related expenses incurred on a day-to-day basis. Since there can be gray areas, you’ll want to be clear on what’s considered a business-related expense. The guidelines set by the IRS for deducting business expenses may be a helpful starting point.
2. Tailor the Expense Report to Your Business
Depending on your business’s industry, you’re likely to have certain types of expenses more often than others.
If you have a sales team, for example, you’re more likely to incur a variety of travel expenses such as flights, car rentals, lodging, and meals while on the road. On the other hand, a professional service firm may have more training and educational expenses. As you’re designing your expense report, it can be helpful to have expense codes for the categories most relevant to your business to help you account for these costs longer term.
3. Make a Template
Filling out expense reports can be tedious, to say the least. Having a standardized format helps simplify the process, especially if you have multiple employees regularly submitting reports. If you don’t already have one, there are a number of free expense report templates you can download to get started. Or, you can purchase software to make the process even easier.
Whichever approach you take, it’s usually helpful to include instructions for how to complete the report, as well as where to include relevant receipts and documentation.
4. Determine a Frequency
Since it’s easy for smaller expenses to fall through the cracks, it’s usually beneficial to designate a minimum frequency for submitting reports to keep yourself and your employees on track.
Requiring that expense reports be submitted at least monthly or quarterly not only helps ensure that your accounting records are up-to-date, but that employees are being reimbursed for any business-related expenses they’ve incurred in a timely manner. Once you’ve determined the frequency that makes the most sense for your business, make sure to communicate it to everyone filing expense reports to avoid lapses.
5. Designate a Point Person
Whether it’s you or someone else at your company, it’s a good idea to designate one person to collect, process, and archive expense reports. Having a dedicated person who is trained on the process and can answer relevant questions helps ensure that all business expenses and necessary reimbursements are treated in a consistent manner. It will also be helpful in the unfortunate event your business is audited.
Conclusion: Start Using Business Expense Reports
With tax season well under way, now is a great time to implement a system for documenting and tracking business-related expenses. Whether you’re a business-of-one or have multiple employees, a systemized approach for recording expenses has many benefits. Not only will it keep you organized and on budget, it may even boost your bottom line by helping you eliminate unnecessary expenses over time.
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