Whether you’re entertaining clients, going on business trips, or treating your employees to lunch, having your business foot the bill makes good economic sense. This is especially true when these expenditures are tax deductible.
Rather than waiting until tax season or the end of your financial reporting period to track incidental costs, you should have a system in place to record your expenses. By requiring you and your employees to file routine expense reports, you’ll have the documents 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.
The 5 Steps to Writing 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 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 expense, and what you should consider a personal 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 likely have certain types of expenses more often than others.
For example, if you have a sales team, you’re more likely to incur business travel expenses such as flights, car rentals, and lodging. On the other hand, a professional service firm may have training expenses.
As you’re designing your expense report, it can be helpful to have codes for the expense categories most relevant to your business to help you account for these costs longer term. Or, you may want to create expense reports tailored to specific areas. If your team travels frequently
, create a travel expense report, where you track employee expenses on the road, and know who to give cash or mileage reimbursements to.
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 submitting weekly expenses. 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 accounting software
to make the process even easier.
Regardless of the approach you take, you should include instructions on how to complete the report and where to save relevant receipts and documentation. This can be helpful if you have numerous employees that are tasked with filing expense reports.
4. Determine a Reporting Schedule
Since it’s easy for small business 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.
By requiring that expense reports be submitted at least monthly or quarterly, you can ensure that your accounting records are up-to-date. In addition, you'll be able to verify that employees are reimbursed for business 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 an employee who understands the process and can answer questions helps ensure that all reporting and expense reimbursements are consistently handled. It will also be useful in the unfortunate event your business is audited.
Conclusion: Make Financial Management a Priority by Using Expense Reports
It's always a great time to implement a system for documenting and tracking business expenses. Whether you run an independent business 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 avoidable expenses over time.
Editor’s Note: This post was updated for accuracy and comprehensiveness in August 2019.