As a manufacturer, you’re always looking to strengthen your financial position. You understand that to do this successfully, you need to take intentional actions. One such action is to streamline your business expense tracking so you can fully control your finances.
But what exactly is expense tracking, and why is it important for your manufacturing business?
This short guide explores these questions and more, including how to track business expenses and the best expense tracking apps.
What exactly is expense tracking?
Expense tracking is the systematic process of monitoring and recording all expenses to understand spending better and make informed business decisions. Businesses will typically record and classify expenses as either fixed or variable costs, where fixed costs generally remain the same each month, and variable costs fluctuate.
For a manufacturing business, examples of fixed costs include rent for manufacturing facilities, depreciation of machinery and equipment, salaries for staff, and software licensing costs.
Examples of variable costs include raw materials, direct labor that fluctuates based on production volume, packaging materials, freight and shipping costs, machine maintenance, and quality control costs.
So, why is it important to track your expenses?
At a high level, tracking expenses helps you understand how you’re spending money so you can make better decisions to improve your financial position. Diving deeper, it offers many benefits:
1. Better cost controls
You can identify overspending, inefficiency, or waste, such as excessive raw material usage, higher supplier prices, or high equipment maintenance costs.
You can then implement various cost controls, such as optimizing production processes, negotiating better supplier contracts, and establishing a maintenance schedule.
2. Improved budgeting and planning
Daily expense tracking helps you create budgets and financial plans so you can better allocate resources and manage production costs. For instance, it may help you pinpoint significant increases in maintenance costs for ageing equipment. You can then allocate a portion of next year’s budget to purchase new equipment to reduce downtime.
3. Streamlined operational efficiency
Monitoring costs related to production processes and inventory management allows you to streamline operations, improve workflow, and enhance efficiency.
For example, imagine you identify significant increases in the value of inventory spoilage. You decide to investigate and discover that the root cause is poor inventory management, where you’re overordering, and perishables are sitting in storage and expiring.
So, you revisit your ordering processes and use an IMS to set reorder points so that stock is automatically ordered when it reaches a predefined level. This ensures that optimum stock levels are maintained.
4. Enhanced compliance and reporting
Accurately tracking expenses helps you remain compliant with financial regulations, tax requirements, and accounting standards, minimizing the risk of paying penalties.
For example, tracking equipment purchase and maintenance costs helps you comply with the tax regulations governing capital expenditures, like capitalization thresholds.
5. Informed profitability analysis
Expense tracking lets you analyze product profitability, make informed pricing decisions, and optimize product lines for more profits.
For example, let’s assume you’ve identified a product line with a high production cost. You immediately compare it to your sales revenue and discover low margins. You now have several choices: adjust your production process to reduce costs, negotiate better input costs with suppliers, or discontinue the product line altogether.
As great as this all sounds, you’re probably wondering how to tackle expense tracking effectively.
How do you track business expenses?
From creating a dedicated bank account and choosing a suitable expense tracking system to creating a chart of accounts and correctly allocating your expenses, here are six steps to track your expenses.
1. Set up a dedicated business bank account
This allows you to track your income and expenses from one place without interfering with your personal finances.
2. Choose a suitable expense tracking system that aligns with your business
While accounting software is probably your best option as it helps you automate processes and minimize human error, manual tracking through spreadsheets is also possible. Regardless, ensure your system makes it easy to record, categorize, and analyze all expenses.
3. Create a comprehensive chart of accounts
Create categories for different types of expenses relevant to your manufacturing business. Common expense categories may include raw materials, labor, utilities, equipment maintenance, and overheads.
4. Capture and allocate business expenses
Any accounting system will allow you to store invoices, receipts, and other necessary expense documentation. Once captured, immediately allocate these expenses to the correct categories to maintain accuracy and prevent oversight.
For example, if you purchase materials, plastics, or chemicals used in production, assign them to the Raw Materials expense category.
5. Review and analyze expenses
What’s the point of expense tracking if you’re not regularly reviewing expense reports to identify patterns and ways to improve? Compare actual expenses against your budget to identify variances, reconcile with bank statements for accuracy, and pinpoint cost reduction areas.
6. Remain compliant with your expense tracking and financial management
To avoid penalties, you must be aware of numerous tax regulations and legal requirements related to expense tracking.
These include taxes like income, sales, excise tax, and import/export tax if you’re involved in international trade, as well as regulatory reporting requirements imposed by government agencies like the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA).
Now that you understand how to track expenses, let’s look at the best expense tracking apps for this purpose.
What are the best expense tracking apps and tools?
From all-in-one accounting platforms that offer robust expense tracking tools to apps that mainly specialize in expense tracking, here are five of the best expense tracking apps you can use:
1. QuickBooks
QuickBooks is a comprehensive accounting platform that targets a wide range of business owners, from mid-sized enterprises to large corporations. It offers many accounting features suitable for manufacturing businesses, like expense tracking, invoicing, financial reporting, and payroll management. It also integrates with platforms like Fishbowl for inventory management. To learn more about how Fishbowl is the #1 inventory management solution for QuickBooks users, check out how we integrate.
2. Xero
Another fully fledged accounting solution, Xero offers a comprehensive feature set alongside expense tracking. It has fewer manufacturing-specific features than QuickBooks, but it does offer various third-party integrations to offset this.
3. Reckon
Positioned more as a mid-level platform with fewer features than Xero, Reckon strikes a nice balance between solid features, including expense tracking, and affordability. For more complex accounting needs, you may need to invest in other software.
4. Zoho Expense
Zoho is an expense tracking app that integrates with other Zoho applications, making it ideal if you’re already part of the Zoho ecosystem. Features include receipt scanning, mileage tracking, and expense categorization.
5. Expensify
Expensify is an expense tracking app that specializes in expense tracking and reporting. It doesn’t offer as many features as QuickBooks or Xero, but it can integrate with these accounting platforms.
Take control of your business finances with Fishbowl
Tracking manufacturing expenses will help you control costs, improve budgeting, streamline operational efficiency, and enhance compliance.
The key is to implement a suitable expense tracking system and invest in the right tools to integrate with your existing tech stack.
Fishbowl is the industry’s most versatile and popular IMS. The cloud-based inventory management software helps manufacturing businesses streamline processes, manage stock and warehouses, and track critical business assets for improved visibility and decision-making.
An array of accounting features and integrations with accounting tools like Xero, Reckon, and QuickBooks also make it easier than ever to track costs and expenses, allowing you to take control of your finances for a fraction of the cost.
Ready to learn more? Book a demo today.