How do I Track Operating Expenses?

Keeping track of operating expenses is important to the success of any company. In order to understand what it costs to run the business, it is essential to have a structured method of identifying and categorizing each expense. Fortunately, the process of establishing a procedure for posting business expenses and retrieving the data in some type of usable format is not difficult.

In order to manage the posting of operating expenses correctly, the business must establish at least a few basic accounting records. These records can be maintained in hard copy, but using accounting software can often streamline the task with relative ease. If you are not sure how to set up the records, most of the free and fee-based accounting software packages will provide basic instructions that help you determine which line items should be posted in what category. Once you have the books in place, the posting process is easy to follow.

One very important aspect of tracking your operating expenses is to not put off making regular postings in your accounting books. Depending on the nature of the business, it may be advantageous to post items as soon as they are received. Home-based and other small businesses may be able to post all items one day each business week without creating problems with the operating budget. Even if there isn’t much to post, choosing to do so on a daily basis minimizes the chances of a vendor invoice being misplaced, never posted, and thus never paid until a second notice is sent by the supplier.

With your accounting books established and posting schedule in place, the next phase of tracking operating expenses is to generate reports that break down those expenses into groups. Most accounting software includes a pre-formatted income/expense report that will allow you to compare what is coming in with what is going out within a specified time frame. It is also possible to create a customized report that compares both your income and operating costs to your operating budget. This allows you to not only confirm that enough revenue is being received to cover expenses, but also whether or not you are still operating within budget. By running these reports on a weekly basis, you can adjust your spending accordingly, either by moving up payment dates on some outstanding debt or delaying some payments in order to prevent exceeding your budget during the upcoming period.

Along with tracking operating expenses to make sure the company budget remains balanced, it is important to control operating expenses associated with specific segments of the operation, and make sure the investment in those segments is contributing to the revenue generation process. For example, if you note that expenses within the sales department are increasing, but sales have been stagnant for the past six months, that indicates a need to make a few changes within that area of your operation. From this perspective, tracking operational costs means that the revenue coming in is used more efficiently, the bottom line is kept as healthy as possible, and the chances of building operating reserves for use with future projects is viable.