How to Track Expenses for Small Business: 3 Non-Aggravating Adaptations

This guide is designed to make the recording of sales, purchases, and expenses more accessible and straightforward, avoiding complicated financial terms and focusing on easy-to-follow methods. Here, we dive into practical ways to accurately record sales, purchases, and expenses. For this article, we will look at spreadsheets, accounting software, and point of sale (POS) systems, but first…

Understanding the Importance of Accuracy

Before diving into how to track income and expenses, it’s essential to understand the “why.” Accurate daily transaction recording allows you to:

  • Track Cash Flow: Understanding how much money is coming in and going out. Cash flow is the amount of cash being transferred into and out of a business. It determines a business’s ability to cover its expenses, invest, and grow. 
  • Make Informed Decisions: Making informed decisions based on accurate financial data allows businesses to strategically allocate resources for growth or implement cost-saving measures during downturns.
  • Prepare for Taxes: Keeping organized records simplifies the tax filing process, making preparation easier and potentially leading to savings by reducing tax liabilities.
  • Detect Fraud and Errors: Early detection of fraud and errors can prevent financial losses for your business. Minimizing losses helps ensure your business remains financially healthy and avoids potential setbacks.

While these may seem obvious, everything starts by tracking your cash flow. Monitoring cash flow helps lead to informed decision-making, which will better position you when preparing for taxes and reconciling accounts. Now, let’s talk about practical (real-world) ways to do this.

How to Organize Small Business Finances

For this article, when we mention “transactions,” we’re referring to “sales,” “purchases,” and “expenses.” Make sure to organize your transactions into categories that clearly separate these different types.

1. How to Record Business Transactions in Excel or Using Spreadsheets

While accounting software provides automation and integration features, spreadsheets allow for a high degree of customization and control over your financial data. They are an excellent option for new business owners who are familiarizing themselves with their accounting needs. Here’s how to organize small business finances in excel:

  • Choose Your Platform: Excel and Google Sheets are popular choices, each with unique features. Google Sheets, for example, offers real-time collaboration online. However, both have limitations, such as security vulnerabilities (human and otherwise). It may go without saying, but be cautious when granting access to spreadsheets with sensitive financial data. 
  • Design Your Template: Your spreadsheet should include columns for date, description, category (e.g., sales, purchases, expenses), amount, payment method, and any notes for clarification. You might also add columns for vendor/customer names and invoice/receipt numbers. There are no right or wrong ways to build your template; the important thing is that you create consistency by recording transactions often.
  • Recording Transactions: Make it a habit to enter transactions daily. This practice prevents backlog and ensures your financial data is always up to date. Attach or link digital copies of receipts and invoices to the corresponding spreadsheet if your platform allows it. You might keep a well-organized digital folder for Excel and other offline programs.
  • Categorization: Use separate sheets or tabs for different types of transactions (sales, purchases, expenses) to keep things organized. This separation makes it easier to analyze specific areas of your business finances. Effective categorization will allow you to self-audit, helping identify unneeded or excessive spending. Or maybe you identify a troublesome client that isn’t profitable (I don’t miss those)…

Transitioning to Software or Digital Systems

As your business grows, you might find that the manual recording becomes cumbersome or prone to errors. This point could be the right time to consider transitioning to specialized accounting software. Many software options can import data from spreadsheets, making the transition smoother.

2. Consider Adopting an Accounting Software for Your Small Business

Accounting software options are designed to meet the needs of various business sizes and types. These tools can automate the recording process, generate reports, and provide insights into your business’s financial health. When selecting software, consider factors like capabilities and cost (for me, it was invoicing features; that’s what got me). Popular options include QuickBooks, Xero, and FreshBooks. We won’t bore you with the specifics here, but we do have dedicated resources to help you compare software options. 

3. Implement a Small Business Point of Sale (POS) System

By accurately recording sales or other business transactions every day, a business can quickly notice trends or shifts in consumer behavior, allowing you to adjust pricing, marketing strategies, or inventory levels promptly. This agility helps the business stay competitive and responsive to demands.

  • Use a point-of-sale (POS) system: Using a POS system that integrates with your accounting software streamlines transaction recording, reducing errors and saving time by automatically updating financial records. Additionally, a POS will help track all forms of payment, including cash, credit/debit cards, and digital payments.on a single system.

Regardless of System or Method, You May Want To:

  • Reconcile Accounts: Reconcile your sales data with bank deposits and receipts. “reconciling” involves matching your recorded transactions against bank statements, ensuring they accurately reflect all transactions. This helps identify discrepancies and prevents financial inconsistencies. This process should be done monthly, but daily reconciliation can help catch differences early. 
  • Train Your Team: If you have employees, training them on the importance of accurate transaction recording and how to do it is crucial. Ensure they understand the processes and tools involved.
  • Seek Professional Advice: Lastly, don’t hesitate to consult with a professional accountant or bookkeeper. They can provide valuable insights into setting up your transaction recording system, using accounting software effectively, and staying compliant with tax laws.

Now, It’s Your Turn

Accurate daily transaction recording is a non-negotiable aspect of running a successful business. By implementing the right tools and processes, you’ll develop habits that lead to better decision-making for your business. Remember, consistency is key, and the effort you put into maintaining accurate records today will pay dividends in the future.

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