How Small Business Expense Tracking Works + 5 Tracking Tools

When looking at your small business’s finances, income is only half the equation. Expenses make up the other half—and they can quickly take your operation into the red if you don’t have a clear understanding of where your business’s money is going. That’s where expense tracking tools come in.

Rather than getting bogged down in an endless pile of receipts, with a good tool, you can easily maintain organized and up-to-the-minute expense records. What’s more, you can leverage those records to perform financial analysis and find eligible tax deductions. Read on to learn the ins and outs of expense tracking and the most popular tools for managing the process.

What is expense tracking?

Expense tracking is the process of carefully documenting every single cost that is incurred by your business. This includes noting what the expense was for (e.g., office supplies or marketing), the date of the purchase, who received the money, and the exact amount spent. Doing this consistently provides a clear overview of where your money is going.

Some examples of business expenses include materials and labor, which fall under cost of goods sold, and operating expenses like rent, utilities, and office supplies. Other common expenses include licenses and permits, software subscriptions, continuing education, business meals, and payment processing fees. 

How to track small business expenses

• Open a business bank account and credit card
• Choose a tracking method
• Record expenses regularly
• Set spending limits
• Consult an accounting professional

Tracking small business expenses involves separating your finances and selecting the right expense tracker, then sticking to a consistent practice of recording. Here’s how it works: 

Open a business bank account and credit card

Separating your business and personal finances is the first step in tracking your small business expenses. Using dedicated business bank accounts and credit cards can help you ensure that all income and expenses related to your business are clearly defined. This makes it significantly easier to monitor your cash flow, reconcile transactions, and identify deductible business expenses come tax time. Mixing personal and business transactions creates a confusing trail that complicates tracking and increases the risk of missing important business expenditures. It can also compromise the liability shield offered by incorporating into a limited liability company (LLC). 

Choose a tracking method

This could range from manual expense tracking via spreadsheet for a very small business to dedicated accounting software as your business grows. The method you choose should allow you to record key details like the date, vendor, description, category, and amount of each expense. Your expense data will be full of valuable insights—so make sure your tracking tool allows you to make the most of it. It should be easy to analyze your spending patterns and generate reports so you can understand the financial health of your business.

Record expenses regularly

By documenting transactions as they occur, rather than waiting until the end of the week or month, you’ll be less likely to forget receipt details or lose important paper receipts when you track expenses. Regular recording means your financial records are always up to date, and it also simplifies bank reconciliation. 

Set spending limits

Establishing spending limits, whether for specific categories (like marketing or travel) or for overall discretionary spending, allows you to gain more control over the money flowing out of your business and curtail unnecessary or excessive spending. Track your expenses against these predefined limits in order to identify areas where you might be over budget—and then take corrective action. 

Consult an accounting professional

An accountant or bookkeeper can be an excellent resource when it comes to setting up and maintaining an effective expense tracking system that is tailored to your specific business needs. They can help you establish a chart of accounts to categorize your transactions, advise on best practices for recordkeeping, and make sure that you capture all relevant tax deductions. They can also offer insights into your financial data, help you interpret reports, and offer guidance on optimizing your expense management strategies. 

Best small business expense tracking tools

• Expensify
• Zoho Expense
• BILL Spend & Expense
• Ramp
• QuickBooks Online

The best small business expense tracking software allows you to categorize expenses, organize entries by status, generate expense reports, manage corporate cards, and reimburse expenses. Some products are standalone expense trackers, while others are expense tracking tools built into popular accounting platforms. If you use a standalone program, make sure it integrates with your books; if you use a tool that’s built into your accounting software, make sure it has all of the functionality you need.

Expense tracking tools should help with creating, submitting, and approving employee expense reports, and many tools come with their own mobile app that lets you scan receipts. Some business expense tracker apps also offer advanced features like corporate cards, which can be especially helpful if you have several employees who need to make authorized purchases and you want an easy way to manage them.

Expensify

Small business owners value Expensify for its automation capabilities, particularly its SmartScan feature for receipt capture, which uses Optical Character Recognition (OCR) to automatically read and extract key information. You can set up approval workflows to automatically create and submit expense reports for employees and reimburse them quickly once the reports are approved. 

Expensify integrates seamlessly with accounting software programs, including QuickBooks, Xero, Sage Intacct, and NetSuite. It also offers features like mileage tracking and unlimited prepaid virtual or physical cards that use a “Smart Limit” system, which means that the limits are tied to approval workflows and admins control those limits. You can easily view expense status (open, processing, approved, etc.) by color and filter out expenses based on the status you want to view.

Pricing: Expensify is free with up to 25 SmartScans. Its paid plans start at $5 per user, per month, with unlimited SmartScans and Expensify cards, which offer 1% cash back on all spending and real-time transaction syncing.

Zoho Expense

Zoho Expense is designed to pair with the Zoho Books accounting software, but it also integrates with QuickBooks, Xero, and Sage and works as a standalone expense tracker. Its comprehensive suite of features includes receipt scanning, automated expense reporting, and approval workflows. This includes customizable approval rules, where you can define specific rules that automatically route expense reports to the appropriate approvers based on various criteria. You can also set up rules that automatically flag expense reports that violate company policies, as well as send automated notifications and reminders to employees and approvers at various stages of the workflow.

Pricing: Zoho Expense offers a free plan for up to three users, and paid plans start at $5 per user, per month.

BILL Spend & Expense

BILL is a cloud-based platform that automates accounts payable and accounts receivable for businesses. BILL users have free access to its all-in-one expense management software called Spend & Expense, formerly Divvy. It also integrates with QuickBooks, Sage Intacct, and NetSuite. While it doesn’t allow for mileage tracking, you can create expense policies, set up multilevel or simple approval workflows, and create employee spending budgets. You can also issue as many prepaid or virtual credit cards as needed, with the ability to freeze individual cards, create custom rules, adjust spending limits, and manage recurring payments per card. 

Pricing: BILL Spend & Expense is free for all users who subscribe to BILL, and can also be integrated with other accounting software for free. BILL’s pricing plans range from $45 to $79 per month, and custom pricing is also available. 

Ramp

Ramp is a spend management tool for established businesses, which it defines as LLCs or corporations with at least $25,000 in any US bank. It doesn’t accept sole proprietors or self-employed individuals. The software’s expense tracking features are designed to scale with fast-growing businesses with customizable views and reports, and analytics on company spending patterns. It offers real-time visibility into spending, automated receipt matching, and more than a thousand third-party apps for accounting, expense automation, and productivity. It is compatible with Oracle, NetSuite, QuickBooks, Xero, and Sage.

Pricing: Ramp’s expense management and corporate card issuance are free for all qualified users. Its plans range in price from $0 to $15 per user per month (plus a platform fee based on team size), and a custom plan is also available.

QuickBooks Online

QuickBooks Online is the only expense tracker on this list that is also a full accounting system. Its expense tracking features are robust and tightly integrated within the software, and once you connect your financial accounts and start recording expenses (whether manually or automatically via feeds), the data flows into QuickBooks, giving you a real-time view of your spending. It allows for easy receipt capture via mobile app or email. The mobile app also tracks mileage. QuickBooks Online automatically categorizes expenses from card feeds, and you can assign expenses to specific classes and locations. Although it doesn’t have the ability to issue prepaid or corporate credit cards, its comprehensive accounting features make it a strong contender if you prefer an all-in-one solution.

Pricing: QuickBooks Online offers four tiered subscription plans that range from $35 to $235 per month, depending on the number of users and desired features.