If you are a contractor and you are still tracking expenses in your head or by keeping paper receipts, you may want to consider the effect this casual way of managing expenses may have on your business profits. Contractors are busy people! Your hours are consumed by the work you do and that means little time is left for what you may consider boring admin or paperwork. Tracking expenses, though, is a necessary part of learning to run your own business effectively. All contractors benefit from using a more formal expense tracking system.
Benefits of Formalizing Expense Tracking for Contractors
Avoid misunderstandings with clients over costs
As a trades professional, sooner or later you will experience disagreements with clients. Many disagreements are about costs, and often, costs overruns when projects scope expands. Stipulating that estimates are just that will help, but a better way of ensuring that you aren’t eating the cost of materials is to track expenses.
It goes without saying that you keep receipts for materials, and, it should also go without saying that you track those expenses through some formal process. That means using expense tracking software. If a disagreement about costs arises, an expense summary tells the whole story. Numbers don’t lie.
Stay compliant with tax authorities
Come tax time, expense tracking becomes important. To take advantage of all available deductions, you’ll need a record of expenses by category (and receipts). In Flare Cloud Accounting, it takes seconds to enter expenses. You can also create expense categories with ease.
Typical expense categories for contractors might include:
- accounting fees
- bad debt
- equipment and supplies
- legal fees
- license and membership fees
- meals and entertainment
- office or home office expenses
- vehicle expenses
Because deductible expenses vary depending on each country’s tax rules, it’s a good idea to consult with your accountant or bookkeeper about what expense categories to set up and which expenses are deductible.
Helps project the costs of similar projects
When you track expenses formally, you have a permanent record that can help you more accurately estimate expenses for similar jobs in the future.
Helps you forecast and plan
By tracking expenses, you’ll be more able to forecast net income and plan for growth. By knowing project costs you’ll be able to budget and plan more accurately.
Sign Up for Flare Accounting Free Today!
Online accounting & finance software that
helps freelancers and micro-businesses increase profit!
Avoid project scope creep
By being able to state total project expenses to date to the last penny, you’ll avoid project scope creep and sticker shock. All contractors have worked with clients that ask for what they think is minor additional work. These additional costs can add up over the course of a job. Tracking expenses will help avoid the scope creep that can eat up profits. By knowing costs, clients will be less likely to ask for work outside the original project scope (which can slow a job down) and, they’ll know exactly what the costs are and won’t be shocked by the additional cost at the end of the job. Formally tracking bills using expense tracking software protects both you and the client.
Identify High-Cost Clients/Jobs
Knowing which kind of clients and jobs cost you the most money will help you identify jobs that bring the most (or least) value to your company. Flare Cloud Accounting allows you to track expenses by client over time. You can view a convenient bar graph of expenses by client over time, easily identifying those with higher costs.
Consider Online Accounting & Finance Software for Contractors
If you are considering expense tracking, you may want to consider online contractor accounting and finance software that will also allow you to create estimates, invoices and budgets. Online accounting software will help you more efficiently and effectively manage business finances from anywhere, any time you like: at home, the office, or on the road.