3 Effective Ways to Track Expenses for Your Small Business

By: Amita Jain on June 4, 2023
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Keeping tabs on expenses can be a lot of work for small-business accounting teams. You have to key in the smallest of purchases, reimburse employees, bill expenses to relevant client accounts, save receipts to claim tax deductions, and monitor overspends.

“With the right tools and practices, managing expenses becomes less painful,” says Athina Zisi[1], chief operating officer (COO) of an eSports company. 

Even though most businesses use software to track expenses according to a recent Software Advice survey on financial planning*, few implement the right practices. In fact, many opt for accounting suites, the most popular choice, despite it lacking the necessary expense monitoring functionalities offered by specialized expense tracking tools

We talked to Athina, a COO, and Lillian Leong[2], a seasoned chartered accountant, who shared three tried-and-true practices to successfully track expenses at SMBs. These will help you gain more control over where your money is going and make it easier to identify areas for cutbacks.

#1. Categorize expenses to monitor your spending accurately

You can’t track what you don’t know exists! First up, understand your business type, size, and industry to identify your most common expenses. A construction company might see materials and supplies and equipment rental as its major spending, while a local retail store would find the same to be inventory and point of sale. No matter what business you are in, be sure to track rent, utilities, payroll, and administration costs—the essentials that all businesses should track.

“Meaningful categorization makes expense data very useful. Imagine knowing your top five expense types! Keep them in control and your business would remain in good shape. You can even compare expenses from your top suppliers to negotiate better deals in discount and payment terms.”

Lillian Leong

Chartered Accountant

Feature Overview

Expense categories come preconfigured in most accounting software and dedicated expense tracker tools. These categories are set based on common expense types within specific industries, making it easier for users to get started. Choose the industry template that best aligns with your business and customize it to fit your needs by adding or removing categories/sub-categories.

Athina[1] shares that organizing expenses this way has helped her generate financial reports that can be boiled down to the very last expense item.

“A suitable expense category structure has kept our spending organized and easily understandable.”

Athina Zisi

Chief operating officer, EnergyCasino

Want to create accurate business expense categories? Use these simple tips.

  • Consider using software that allows you to categorize expenses and track them with ease. Be sure to review your categories regularly and adjust them as necessary to keep them relevant.

  • Use descriptive and consistent terms when entering transaction details, such as the type of expense, date, payment method, and any relevant client or project information. Avoid generic terms that may make categorizing expenses difficult later on. 

  • Know the tax implications of certain expenses when creating categories. Businesses can reduce their overall taxable income by eliminating ordinary and necessary expenses, such as office rent, salaries, and utilities. Other costs such as R&D, business travel, employee benefits, and startup costs are also deductible expenses.

#2. Automate expense reimbursement workflow to save time

Managing employee expenses can be an arduous task. An expense reimbursement workflow includes eliciting receipts from employees, waiting for manager approval, and passing them on to accounts payable teams for reimbursement, not to mention the ambiguities and inefficiencies that come with back-and-forth email or text communication between employees, managers, and finance teams. 

Automating this tedious workflow will free up your time to focus on more strategic aspects of expense management and build employees’ trust by making your processes more transparent and dependable.

56% of businesses are automating the recording and reviewing of expenses, enabling online submissiom

Feature Overview

The expense capture feature allows employees to snap a photo of a receipt or invoice and upload it to a central database for approval. Many tools that offer approval process control do away with disjointed expense approval workflows and allow users to manage and track the status of their claims from one system. The system automatically sends receipts to relevant supervisors and finally to the accounts department for reimbursements. Typically, you’ll find this extent of reimbursement workflow automation in specialized and top-rated expense tracker tools.

As your small business grows and the number of employees increases, automating the reimbursement workflow becomes even more critical. Managing around 70 employees and several contingent workers in her organization, Athina attests to this. “Tracking expenses can easily go out of hand if boots on the ground with corporate cards don’t keep up with their receipts very well, which happens more often than not. With automation and tools, this entire process becomes easier for everyone involved.”

Want to save time by automating your expense workflow? Use these simple tips.

  • Use mobile apps to enable your in-the-field employees to submit receipts on the go from anywhere. 

  • Have policies and guidelines to ensure employee expenses are reasonable, necessary, and in line with your company values. Define “what’s reasonable” in expenses by setting spending limits.

  • Not all expense tracking tools or accounting suites offer approval workflow features. Make sure you look for the specific feature during your software search.

#3. Generate bite-sized expense reports to view patterns

Reporting and forecasting is one of the most helpful and important practices of any data collection exercise. Generate bite-sized expense reports that break down your spending by department, project, expense category, employee, client, date, and more. 

It would help you catch potential issues or deviations early on—maybe you’re exceeding intended budget targets in certain areas, not utilizing funds in others, or need to reallocate funds or cut costs. Go deeper into the data by correlating spending data with profit earned to understand the performance of certain teams or projects.

“One of our most significant expenses is marketing. Based on our previous cost trends, we recently realized that our marketing budget wasn’t enough to meet our future plans for new advertising and social media promotions. So, we immediately cut back from some non-essential areas and reallocated funds to where they were needed most.”

Athina Zisi

Feature overview

The expense reporting and analytics feature monitors and logs the costs incurred by your business and lets you break them down to a department, project, and employee level. Plus, many dedicated solutions also offer dashboards that show real-time expenses and their breakup in graphical format.

“Trend is your friend. Use your historical spending data as a benchmark to anticipate seasonal and annual expenses and prepare accordingly,” advises Lillian.

Want to analyze your spending patterns? Use these simple tips.

  • Make sure all your expenses are carefully organized and filed under the right category, employee or project name, and department. This will help you produce detailed reports for analysis. 

  • Use past expense trends to create a budget. Study seasonal trends and patterns as you allocate expenses. By doing so, you’ll plan ahead and avoid unpleasant surprises. 

  • Regularly reconcile your expense reports with your bank account and credit card statements at least once a month to ensure your reports are complete and reliable.

Let’s take a moment to recap what we’ve learned so far.

Small business expense tracking best practices: Kay takeaways

Ready to optimize your processes? Start with this checklist

You may have already applied some of these expense management practices in your business so far, but if not, it’s time to consider them.

Have a bank account and credit card account just for your business.

Try not to mix business and personal expenses. Take the time to set up a bank account and credit card for your business. If you’re a small business owner in the initial stages of your operations, fund your expenses using the business credit card. It’ll make bookkeeping a lot easier for you.

Get an expense management solution if you’re doing >20 transactions a month.

If your business is handling significant monthly transactions, the chances are you’ve outgrown Excel templates. Consider using software to track your expenses. Not sure where to start? Try using free accounting software with expense tracking features or get a free trial or product demo of a dedicated expense tracker tool. Gradually move to paid offerings of the tool you like for more advanced functionality as you scale operations.

Pro tip

Don’t confuse budgeting applications with expense management tools. While the former gives you a big-picture view of your business finances, expense tracker apps put the focus solely on your spend management.

Consult with a bookkeeper or accountant.

Talking to a professional will help you avoid mistakes from the get-go. Ask them about the expense categories to create for your business or industry type and the tax deductions you can claim based on that, among other things.

Survey methodology

*Software Advice’s 2023 Financial Planning Survey was conducted in February 2023 among 270 respondents to learn more about how businesses determine and adjust their business plans based on developing tax changes, accounting needs, and more. All respondents were screened for involvement in financial planning within their organization.


  1. Athina Zisi, LinkedIn

  2. Lillian Leon, LinkedIn