Micro Key’s 5-Minute Read – Six Consequences of NOT Tracking Expenses
If you are like most business owners, tracking expenses may not be at the top of your favorite tasks to manage. As a business owner, I feel the same way! While it is not the most exciting aspect of business operations, it certainly is one of the most important. Not tracking expenses or NOT tracking expenses in a comprehensive accounting system can have devastating long-term effects on a business. Here are a few mistakes to avoid.
#1. Mistaking Paying Bills as Tracking Expenses
Paying Bills does not equate to tracking expenses. If as a business owner, you areonlyusing the check writing piece of your accounting software, you are paying bills not tracking expenses. Tracking Expenses demonstrates how much money your business is spending per category to type of expense. You probably know that profitability is calculated byrevenueminusexpenses. Expense Tracking versus paying billings provides an accurate analysis of your business’s true cost to provide your goods and services by category.
#2. Not Paying Bills on Time or Missing Payments
Most accounting software programs give you the ability to enter Bills, Pay Bills Electronically and keep track of due dates. If you are just using the check writing piece of your software, you are relying on a manual system of remembering or writing reminders for due dates. Manual bill pay creates the risk of amassing more debt for missed payments and late fees which can increase expenses upwardly up to 20%. While this may not seem like a big monthly number, over time these fees add up and impact the bottom line and profitability.
#3. Harder to Save for “Big” Purchases
Without a clear picture of finances and the added risk of operational expenses costing up to 20% more inclusive of late fees, you are missing opportunities to save, even a little amount every month toward financial goals. If you are NOT tracking expenses, financial goals are purely theoretical!
#4. Struggle to Appropriately Price Goods and Services
If you don’t know how much it cost you to provide goods and services, it is very difficult to appropriately price the goods and services you sell. How much does inventory for each service call or job cost? What are the labor costs? Poor pricing impacts your business’s profitability.
#5. Missing Key Business Health Check Indicators
Tracking expenses provides the ability to analyzeOperating Income(total of a company’s profit after subtracting expenses and recurring and regular expenses) versusRevenue(total amount generated for the sale of goods and services). The disparity between the two can speak volumes about the health of a company’s financials.
#6. Unexpected Expenses Can Throw You and Cost MORE Money
One perk of tracking expenses is financial transparency and the ability to save, even a small amount of money on deck for unexpected expenses. If you don’t have an emergency money fund, you may have to secure financing for unexpected expenses that will cost additional money due to finance charges.
Prioritize Tracking Business Expenses
As this blog demonstrates, NOT tracking expenses can have major consequences on your company’s financial health and profitability. Amidst the hustle of running a small, medium, or large business, a boring task likeexpense tracking is often easy to ignore. Tracking expenses regularly gives you insight into the most up-to-date financial data. Using this, you can analyze your company’s success, identify weaknesses, and plan strategically. Micro Key’s AutoBiller Plus is up for the task! See it in action!
Written by: Victoria Ferro
Listen and Subscribe to her Podcast – Micro Key On Air – Here.
FAQs
Losing track of your spending.
The purpose of creating a budget is to track where your money is going and where there is scope for spending less. If you don't stick to a budget, you are at risk of spending more than you can afford, leading to poor decisions and debt.
What are three reasons why it is important to track your expenses? ›
Benefits of Tracking Expenses You Should Know
- Benefits of Tracking Your Expenses. ...
- Know what expenses are used for. ...
- Know the average daily, weekly, and monthly expenses. ...
- Identify necessary and unnecessary expenses. ...
- Makes financial planning easier. ...
- Know your transaction limit.
One key to recovering quickly from theft or fraud is catching the problem quickly. Your bank might notify you of suspicious charges, but oftentimes, you are the best first line of defense. If you aren't watching your expenses closely, you probably won't catch issues as soon, leaving your money at risk.
Why should expenditures be tracked? ›
Tracking your expenses helps you prioritize spending, track your results, and see what changes you need to make to achieve your goals and create the financial future you want. It also enables you to build an emergency fund, giving you a cushion to fall back on during unexpected events.
What are six disadvantages of budgeting? ›
Here are several budgeting disadvantages and tips for managing them:
- Determining the right process. ...
- Feeling constrained. ...
- Spending more than necessary. ...
- Finding the time for it. ...
- Making the right decisions. ...
- Impacting how employees feel. ...
- Overlooking important factors. ...
- Having top-level employees do all the planning.
Without proper financial management skills, individuals may find themselves spending more than they earn, relying heavily on credit cards, loans, or other forms of borrowing. This leads to a cycle of debt, making it difficult to break free from the burden of financial obligations.
Why is it important to manage expenses? ›
Debt Reduction: High-interest debts can be a significant burden on your finances. Expense management helps identify areas where you can cut unnecessary spending and allocate those funds toward paying down debts. Over time, this can lead to substantial savings on interest payments.
How does tracking your expenses help you find your goals? ›
If You Spend Money, Track It
Setting goals will help you determine how much you need to set aside each month to reach your goals. Once you have a good idea of your income and expenses, you can prioritize your expenses and set aside the necessary funds for each one.
How do you track expenses efficiently? ›
- Check your account statements. ...
- Categorize your expenses. ...
- Build a budget that works for your expenses. ...
- Use budgeting or expense-tracking apps. ...
- Explore other expense-tracking methods. ...
- Look for ways to lower your expenses.
**Risk Management**: Cost monitoring helps in identifying potential risks and uncertainties that may impact the project's budget. By identifying these risks early, project managers can develop strategies to mitigate them and minimize their impact on the project.
You need good records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business.
Why is it important to track your spending before creating a budget? ›
Tracking your spending helps you identify areas where you're overspending, which is the first step to creating a budget. It also allows you to prioritize your spending and cut back on unnecessary expenses.
Why is tracking expenses important? ›
The main reason you should track your expenses is to identify and eliminate wasteful spending habits in your financial life. Moreover, consistently tracking your expenses will help you maintain control of your finances, and promote better financial habits like saving and investing.
What is the importance of tracking and monitoring your budget? ›
By tracking and monitoring your budget, you can stay in control and demonstrate good management of your activities and their financial impacts.
Why is it important to track revenue less expenses? ›
Better profitability and cash flow
Tracking business expenses makes calculating profitability so much easier. All they have to do is subtract the total revenue minus the expenses you have tracked. This simple calculation provides a clear financial record and indicates whether the business is making money.
What is the effect of not keeping a personal budget? ›
Financial consequences
The lack of a financial plan essentially means you are unaware of how much money you should be spending and for how long this money is going to last you. In such cases where there are no limits or financial boundaries, it is very easy to overspend and live beyond your means.
What is the consequence of not preparing a budget? ›
The potential consequences of not having a budget can be severe. Without a budget, it's difficult to identify risks and challenges and determine how quickly you need to address them before your financial resources suffer. It can lead to overspending, financial instability, and inability to make informed decisions.
What happens if you don't do bookkeeping? ›
Cash flow issues can happen
Neglecting bookkeeping means you will struggle to accurately track cash flow and ensure your business has enough money to cover expenses. This can lead to cash flow problems, putting your business at risk of being unable to pay bills or employees on time.
What is the consequences of overspending? ›
However, overspending can lead to dire consequences like having to dip into savings or getting into debt. Moreover, it can sometimes create a dis-saving habit, where an individual spends more than they earn, leading to long-term financial insecurity.
Micro Key’s 5-Minute Read – Six Consequences of NOT Tracking Expenses
#6. Unexpected Expenses Can Throw You and Cost MORE Money
