As a small business owner, managing your finances can often feel overwhelming, especially when it comes to keeping track of all your expenses. Many small businesses, particularly service-based and women-owned businesses, tend to overlook some critical costs that can significantly impact their financial health. Missing these expenses not only skews your financial reports but also means you’re losing out on valuable tax deductions that could save you money.
In this post, we’ll cover the top three expenses small business owners often forget in their bookkeeping, why these expenses are frequently missed, how it affects your income and financial reports, and tips to ensure they never get overlooked again.
1. Mileage and Transportation Costs
One of the most overlooked expenses in small business bookkeeping is mileage and transportation costs. Whether you’re driving to client meetings, running business-related errands, or attending industry events, these costs quickly add up. Unfortunately, many business owners forget to record them or assume the expense is too minor to bother tracking.
Why It’s Missed:
- Most small business owners don’t have a habit of recording mileage right after a trip, making it easy to forget.
- There’s often confusion about what qualifies as a deductible expense, leading to missed opportunities.
Impact on Financial Reports and Income:
- Failure to track mileage results in inaccurate profit margins. Your business appears more profitable than it actually is, leading to misleading financial reports.
- You’re missing out on tax deductions that could save you significant money, essentially leaving cash on the table.
How to Never Forget Again:
- Use mileage tracking apps like MileIQ or QuickBooks Self-Employed to automatically record trips. These apps run in the background and log every business-related drive.
- Set calendar reminders to log your mileage after every client visit or business trip. Consistency is key!
- Keep a dedicated log or spreadsheet for mileage if apps aren’t your thing—whatever helps you track it regularly.
Pro Tip: Bookmark your favorite tracking tool on your phone’s home screen for quick access.
2. Subscription Services and Software
In today’s digital age, most businesses rely on a variety of software and subscription services to stay competitive. From project management tools and CRMs to design software and accounting platforms, these recurring expenses are often overlooked in bookkeeping because they’re usually auto-deducted.
Why It’s Missed:
- These expenses are often small, monthly charges that fly under the radar because they’re automated.
- Business owners don’t regularly review their bank or credit card statements, causing them to miss these recurring charges.
Impact on Financial Reports and Income:
- Not tracking subscription costs results in understated expenses and inflated net income, leading to skewed financial statements.
- Over time, these small costs add up, impacting cash flow and profitability. Misjudging these expenses can also affect budget planning.
How to Never Forget Again:
- Review your statements monthly and categorize each subscription. Many accounting software programs, like QuickBooks or Xero, allow you to automate the categorization of expenses.
- Set up a dedicated account or payment method just for business subscriptions. This will make them easier to track.
- Use expense management tools like Expensify to automatically scan, upload, and categorize receipts from subscription services.
Pro Tip: Schedule a quarterly audit of your subscriptions. Cancel anything you’re no longer using or find more cost-effective alternatives.
3. Home Office and Utilities
Many small business owners, especially those running service-based or online businesses, operate out of a home office. However, they often miss the opportunity to deduct a portion of their home office expenses, such as rent, utilities, internet, phone bills, and even office supplies.
Why It’s Missed:
- There’s often confusion about what qualifies as a deductible home office expense, and many business owners don’t want to risk overstepping tax boundaries.
- Tracking utilities and home office expenses can feel complicated, leading many to skip it altogether.
Impact on Financial Reports and Income:
- Ignoring these expenses artificially inflates your net profit, leading to higher taxable income and unnecessary tax liabilities.
- Missing out on these deductions means you’re paying more in taxes than you need to, which directly affects your bottom line.
How to Never Forget Again:
- Keep a separate folder or digital file specifically for home office expenses and bills.
- Use accounting software to set up an expense category for home office costs and input the percentage of your home that is used for business. Tools like QuickBooks have built-in features for tracking these deductions.
- Regularly update your expense records to ensure that your financial reports accurately reflect your true costs.
Pro Tip: Use your accounting software to automate the tracking of recurring home office costs, such as internet and utilities, by setting up recurring entries.
The Bigger Impact of Missing These Expenses
Missing any of these expenses doesn’t just affect your tax deductions; it impacts the overall financial health of your business. Inaccurate bookkeeping can lead to poor business decisions, cash flow issues, and even legal complications if your financial records are audited. Ensuring that every expense is properly tracked and accounted for gives you a clear, accurate picture of your business’s financial performance.
Don’t Leave Money on the Table
If you’ve been missing these expenses in your bookkeeping, it’s time to take control of your finances. A professional bookkeeper ensures that no detail is overlooked, maximizing your deductions and keeping your business on track. If you’re ready to see how having a dedicated bookkeeper can benefit your business, schedule a free consultation with me today. Contact me today to book your call and let’s make sure you’re not leaving money on the table.
