What You Can Claim as a Business Expense

Knowing where you spend your money is important for every person and thousands of books have been written about the best way to spend your money – normally on appreciating assets like houses, shares etc

Spending money on Assets vs Expenses

Buying an online business is what is known as a capital purchase or purchase of an asset. Although most valuable assets like real estate increase in value over time they are “depreciated” for accounting purposes due to wear and tear.

Depreciation simply means that you can claim a percentage of the total cost per year over a “defined” timeframe. This timeframe is determined by the Australian Taxation Office.

Most purchases that business owners make are expenses and business expenses can be “written off” immediately when they are incurred.

These expenses can be products used on client jobs or costs for running the business like telephone, Internet and cost of MYOB or Xero subscriptions.

Written off means that the total amount is deducted from your total revenue (income) to determine how much profit your business makes.

As a small business owner you only pay tax on your profit (not your income).

This is one of the biggest surprises for new business owners because when they become a business owner they can now reduce their “taxable income” by expenses that they have probably been paying for years, things like:

Car Repairs,
Petrol
Internet
Mobile phone
Laptop & electronics purchases

Keep Track of Your Expenses

The biggest challenge that new business owners face is keeping track of their expenses.

This is often because they have one personal bank account that they use for both personal and business expenses.

Unless you flag business expenses immediately and it can be hard to identify which expenses are for business, particularly 12 months later when you do your taxes.

Another issue that comes up a LOT is that you can ONLY claim a percentage of your expenses if you only USE a percentage for your business.

Your family car is used to

go to the shops,
go on trips,
take the kids to sporting events and maybe
go and see a couple of clients.

If you only use the car for business 40% of the time you can only claim 40% of the costs of running that car.

If you run a Micro Business it can be simple to keep track of your expenses manually but once you start to grow and get more clients and more expenses you’ll find it very useful to use a software program like Xero, MYOB or QuickBooks to keep track of your expenses.

PLUS, you’re probably already using accounting software to send invoices and keeping track of who owes you money!

Our goal is to help new independent contractors, freelancers and consultants understand where their money is going, how to measure their financial performance and how to understand financial reports and make decisions based on them.

If you’re an employee you’ll need to know how to perform this work for the businesses where you work.

Source Documentation – Bank Statements

The usual source of all financial information is your bank statement but that doesn’t help if most of your expenses are paid for using cash – in that case you need to keep your receipts!

Even if you do have a business credit card you need to keep a record of your receipts.

We recommend that you setup a debit bank account so you can use a credit/debit card for small transactions and have them all noted on your monthly bank statement.

If you use one bank statement for both personal and business transactions then your first task will be to separate the two.

One of the best ways to keep track of your receipts is to use Receipt Scanning or Receipt Capture software.

You can just use your mobile phone to take a picture of each receipt but expense tracking software enables you to have them all filed in your accounting software for when you really need it.

One of the interesting developments in Artificial Intelligence is that it can now scan a folder on your computer filled with images of receipts and create a Microsoft Excel spreadsheet of them all!

Learn about the Receipt Capture Training Course

Income & Expense Categories

These categories enable you to identify how much money you spend on

rent,
travel,
advertising,
internet and
mobile phones for example.

If you notice that a particular expense is too high you can work on a strategy to reduce that expense and give yourself more profit.

Sometimes it’s OK to spend more on advertising for a short time to build awareness of your brand, knowing that these costs will come down after 3-4 months.

Keeping a monthly record of these totals will help you see very clearly if you are sticking to your plan. It’s even more important to be able to identify which sales came from a particular advertising campaign.

Using Google Ads campaigns, Google Analytics and Discount coupon codes is a great way to actually measure how well your advertising is going.

Nerd Alert!

An urchin tracking module (UTM) is a snippet of code added to a URL in Google Ads Campaigns for the purpose of tracking online marketing performance and better understanding audience behavior.

Nerd Alert END

Combine that with discount or promo codes for online orders and you have a great way to track performance, but back to the business admin and financial side of a business!

Financial Reports

Reports and analytics are simply methods of representing statistical information about your transaction activity.

Analytical tools are used everywhere to measure your performance and reveal important information in things like:

visitors to your website,
sales performance and of course
your financial situation.

A major purpose of our Expense Management Spreadsheet and course is to introduce the concepts and terms that are used in financial reporting and help you stay on track with your strategies to reach your goals.

Popular Financial Reports

Common financial reports include reports relating to cashflow, income, assets, debts and money owed (receivables).

One of the most important reports that relate to daily transactions and invoicing is Accounts Receivable. This financial report shows you how much money is owed to you and how long it has been owed.

As with most financial transactions, the longer money is owed the worse it is and the higher the risk of not getting paid.

Learn more about Financial Reporting