Why You Should Pay More Attention To Tracking Business Purchases?

Tracking Business Purchases or Business Purchase Management is an important element for any company that compares its performance on the financial side with its actual holistic performance. It helps in having a look at the big picture. It helps in holding financial records in a simpler yet cognitive record of transactions.

This helps calculate the various metrics, such as Liquid Ratio, Cash Inflow during Operating Activities, etc. These metrics will subsequently help make inferences related to making forecasts, finding trends in the portfolio, etc. Certain steps need to be followed to track business purchases. They are listed as follows:

1. Digitising Receipts With a Receipt Scanner

There are different software which offers this feature. Some of them are NeatDesk, Evernote Scannable, NeatReceipts, Shoeboxed, etc. This software can be used to digitise any receipt. The reason for doing this is, there will be hundreds of receipts that will have to be accounted for, and identifying which expense will be charged tax becomes a tedious task for the user since it’s time-consuming and it comprises a heavy workload.

Tons of paper will be used, which wouldn’t be of much meaning when kept as just paper in hand. Every transaction which is said to be a business transaction needs a receipt as proof. The software can scan and maintain a record of these transactions, which reduces workload and time constraints. Getting the transactions audited hence becomes an easy-to-do task when it's digitised.

2. Using The Software To Categorise And Keep The Expenses Under One Roof

The software can then be used to differentiate transactions, such as “Capital”, “Revenue”, “Operating Expenses”, etc. This categorisation helps in meaningful analysis of the data derived from the transactions, and appropriate tools can be used to take meaningful decisions later. Having all these expenses under one roof helps in identifying the exact financial position of the company. There are also some cases where bank accounts can be linked with the accounting software, which helps identify cash inflows and outflows via the bank.

3. Having a Separate Business Card and Bank Account

Having a separate bank account and business card helps in differentiating between personal expenses and business expenses. It helps categorise these expenses faster and with minimum costs since the very basic differentiation is already done. The receipts generated for the personal card will be omitted from calculating business expenses and tax liabilities.

Having a Business Bank Account also yields some benefits. Overdraft facility is one such feature of Current Accounts, which helps provide for expenses even when there is insufficient balance in the Holder’s account.

4. Import Transactions of Bank Account to the Accounting Software

It is mentioned that it is better to connect the bank account and the accounting software. We can import these transactions associated with the Business Bank account to the Accounting software, which helps carry the categorisation of expenses. This linking helps in the omission of transactions and makes sure that the transactions get matched to the corresponding receipts. It helps in reducing the time spent on bookkeeping and subsequently smoothens the entire process.

5. Reviewing Business Expenses regularly

The transactions that are being recorded and categorised can easily be reviewed regularly. This can be done on a real-time basis, which adds to the benefit of tracking business purchases. This real-time framework helps reduce the hours of manual work needed if such software were not being used.

These are some steps that are involved in the process of tracking business purchases.

Benefits of Tracking Business Expenses

There are various benefits attached to tracking these expenses. One of the key benefits is that tracking the expenses creates a better Money Manager. Lack of Cash Flows can cause the business to terminate within a short period of time. Also, tracking the expenses in real-time can help in ascertaining whether the company is abiding by the budgets proposed in the AGM or not. This helps make further decisions related to whether an operation needs to be continued or not, whether to invest more in a project, etc.

It helps in improving the spending habits of the company. It can look into the channels through which the funds are being spent, and the same can be controlled using different Management Techniques and effective decision making.
In other words, tracking business purchases is a recording tool and an inference-generating provider that will help make forecasts. Forecasts include a sales forecast, profit expectations, strategising, etc.
There is one more benefit for small companies: incentivising or encouraging employees to continue working in one’s company. This is through reimbursement of the small expenses that an employee has every day, such as meals, commutation charges, etc. Such expenses can be tax-deductible, and hence the company benefits from this, and the employees also benefit from this.
We can definitely find the problem areas. For example, a hike in costs can be easily determined using the existing record of transactions. There might be an increase of 5% in labour cost or a 15% increase in Carriage Charges. This increase can immediately be identified and sorted out when tracking purchases. Also, the mode of payment can be easily assigned based on the rewards and the costs associated.
For instance, spending through a credit card will have better outcomes when compared to spending by Cash. This will have a long-term benefit in bringing down the total costs incurred, keeping the revenue the same. Hence, one can find that such linking of bank accounts to software can be extended to linking credit cards with the software too.

After knowing how much one has invested or spent on different channels, reviewing the same is done to see if the costs are abiding by the budget. If the actual costs are incongruent with the predicted costs, then the budget needs to be remade, considering the deviations that were present. Every deviation can then be analysed and worked upon, to check if there are areas of improvement for the organisation. Unwanted costs can also be cut, such as Entertainment Expenses, etc.
The most important benefit is the cost of categorising and analysing the transactions themselves. Recording everything by pen and paper would mean that more labour would be needed, and an immense amount of calculations will be needed to carry out the process. However, the software needs a click to generate the output and show the results of the transactions. In other words, the lead time is drastically reduced.
The process can further help in detecting frauds. It is hard to identify if the manual work is wrong since reviewing the manual work itself would be an extremely tedious task. The manipulation would be present in different areas of recording and categorising transactions. However, the risk of frauds is exponentially lower in the case of Digital Recording of transactions.
Simplification of the process is yet another benefit, whereby the entire set of transactions are meaningfully recorded and classified under one roof. It makes it easily accessible for anyone and everyone to see and review reports.

Also read:

1) 10 Best Ways to Promote Your Small Business
2) How Many Social Media Sites Can I Promote My Online Business On?
3) Online Business Ideas You Can Start Quickly
4) 8 Online Business Ideas That Could Make You Hit Gold in 2020

Stay updated with new business ideas & business tips with OkCredit blogs in English, Hindi, Malayalam, Marathi & more!
Download OkCredit now & get rid of your bookkeeping hassles.
OkCredit is 100% Made in India.

FAQs

Q. Which software provides an edge over the traditional modes of categorising transactions?

Ans. There is various software available, such as NeatDesk, Wave Money, etc., which are designed for the sole purpose of tracking and categorising transactions under one roof. The appropriate software can be chosen based on the size of the company. For example, a small company wouldn’t purchase a huge software like Wave Money because its cost is too high. It can rather use MS Excel to solve this purpose.

Q. What are the benefits of tracking business purchases?

Ans. The core benefits of this process are easy budgeting, continuous tracking of expenses, prevention of mindless spending, simplifying the tax filing process, etc.

Q. How does reviewing the expenses help an organisation?

Ans. The process of reviewing the expenses helps the organisation cut down unwanted costs, hence increasing its efficiency of operations. It helps in re-making the budget in case of unexpected and heavy deviations from the existing budget. These insights can be taken from real-time tracking of everyday expenses.