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How to use an expense report to stay on top of your cash flow

Learn the fundamentals behind expense reports and take a look at an expense report example you can use to start tracking yours properly.

Woman calculating finances using an expense report example

Independent business owners don’t need to be told how important it is to track spending, whether expenses are fixed or variable. Whether you’re prepping for a new fiscal year or reviewing an individual project, tracking expenses is key to understanding where your cash is going. 

Effective and efficient financial management keeps the lights on as much as excellent service delivery, especially for self-made, self-run businesses.

In the process of balancing your finances, you’ll find that some tools are standard. An expense report is a core financial report for independents.

Here you will learn what the critical expense report is, its uses, and the elements it should contain. It’s a fundamental primer on one of the most important documents that serve as the pillar for excellent business financial management.

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What is an expense report?

In a nutshell, an expense report is a document used to track business expenses for reimbursement or budgeting purposes. It may include items such as travel expenses, office supplies, and other day-to-day costs or long-term expenses. 

It serves a fundamental and critical function in clearly keeping track of expenses so you can stay within your budget. An expense report also allows you to identify areas where you might be overspending and make adjustments accordingly.

Manual expense sheets are typically built from spreadsheets, but the more complex your business needs, the better it is to rely on more powerful financial reporting solutions. That’s why it’s good to use a platform like QuickBooks, that can help you track expenses easily and puts them into a P&L.

A monthly expense report gives you a snapshot of your short-term financial status, while longer reports can provide insight into mid and long-term finances.

Below is an example of an expense report, which you can customize and use as an expense report template.

Expense tracking is key to budgeting, price setting, and more.

What is an expense report used for?

An expense report essentially serves as a reference point for any purpose that involves budgeting and finances. For instance:

Tax purposes and auditing

When you file taxes, expense reports are a requirement for tracking business costs that you can write off. They’re also essential for auditing and other obligatory financial matters, such as reimbursements (and other allowances) for employees

As your business grows, so too does the importance of a proper expense report. But even if you’re a sole proprietor, your expense report is required for tax filing and auditing. And it is highly important to make sure any documents used for those purposes are filed accordingly.

Cash flow adjustments

Even if you don’t need to file taxes and provide documentation for auditing, you would still need expense reports to be able to track and manage your cash flow. It’s crucial that you’re able to make data-driven cash flow adjustments by identifying areas where you might be overspending. 

You’ll need the historical data contained in previous expense reports to plot future budgets based on your previous spending patterns.

To make appropriate decisions, you should properly define your expense categories. For instance, you might find that you’re spending 15% of your operational costs on software. If you can lower those costs to 10%, that’s 5% lower expenses to help balance your cash flow more positively.  

Determining service pricing

Generating an expense report allows you to understand where your money is going, and one key area you want to focus on is service overhead. How much does it cost to deliver your services to your clients? 

In the same way, an expense report can provide insight that lets you make better-informed decisions regarding cash flow adjustments, it can also show you how to potentially adjust your service pricing based on overhead.

You might be surprised to find there are unexpected costs associated with your services that you didn’t think of initially. Some overhead costs might not be associated with just one service, for example, so it might not be accounted for in any of your service offerings. Keep a sharp eye on where the spending leads and what it’s for.

Pro tip

Develop custom sub-categories unique to your business for better financial analysis capabilities. If you’re a photographer who spends a lot on film, for instance, that can be its own sub-category separate from other operational costs.

What goes into an expense report?

So, what elements need to be present in your expense reports?

  • Expense categories: These are the different types of expenses that you will be reimbursed for. Examples might include travel, meals, entertainment, and business expenses. It is important to have these so you can track your spending and ensure you’re not overspending in any one category.
  • Dates: This is the date on which the expense was incurred. Tracking the date helps you see when your expenses were incurred and make sure that they fall within the time period specified by your company’s policy (if applicable). The most common are monthly expense reports, followed by quarterly and annual reports.
  • Costs: This is how much each expense costs. Track expense costs so you can stay within your budget and get reimbursements for all of your eligible expenses.
  • Project or client: If this expense report is specific to a project or client, it’s highly beneficial to note which one it belongs to here. That way, if there are any questions about the expense later on, it will be easier to look it up in your records. More refined expense attribution lets you better understand overhead costs.
  • Description of expense: A brief description of what the expense was for helps jog people’s memories if they need more context about why a particular purchase was made. You want sufficient information to understand what the expense was for in clear wording; you may want to standardize what goes into your expense description to streamline everything.

Manage your payments and expenses in one place with HoneyBook

If you’re looking for an easy way to track expenses and manage payments, HoneyBook is a great platform that supplants manual, work-intensive spreadsheets while also providing additional, powerful, DIY business capabilities. 

With our payment processing and expense reporting features, you can keep tabs on your cash flow, record your finances for tax purposes, and get a better understanding of your overall business health. Plus, there’s a free trial so you can try it out hassle-free.

Track payments and expenses in one place

With HoneyBook’s online payment software, you can book clients, manage projects, and keep an eye on your finances.

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