Using Expense Reports for Small Business: Everything You Need to Know

Written by Clyr team

When it comes to running a successful small business, having an effective business expense report process is more important than ever. Expense reports allow you to manage business-related costs in an organized manner and track expenses for potential deductions come tax season. Not only will this help ensure that all revenue cycles stay on track and budgets are adhered to properly, but it will also simplify accounting procedures for the company’s overall financial health. 

If you’re wondering how to create an expense report, what’s included in them, or why they should be used, don’t worry! In this blog post, we’ll walk through everything from what constitutes an expense report to how they can benefit smaller businesses and even include a few tips to write one yourself with ease.

expense report for small businesses

Expense Report for Small Business  

Small businesses rely on accurate expense reports to track cash flow and determine if expenditures are authorized. The expense report comprises all the expenses incurred through business operations – transport, meals, and other purchases. Employees can document the necessary information in a paper format or using software like an expense report template for accuracy and improved visibility into their activities. 

After completion of the expense report, it usually goes through an approval process before expenses are reimbursed. For businesses to be successful and organized, these systematized forms can help prevent any unnecessary mishaps.

 Managing out-of-pocket expenses is essential for optimal growth. Small Businesses should always strive to maximize their efficiency by implementing effective procedures with regard to expenditure!

Importance of Creating Expense Reports for Small Businesses

A business that requires employees to submit expense reports can take advantage of tax deductions. When expenses are reimbursed under what is called an accountable plan, the reimbursements are not taxed as wages for the employee and the company can deduct the employee reimbursements as business expenses. Under non-accountable plans, reimbursements are treated and taxed as gross income to employees.

Ensuring expense reimbursement arrangements adhere to Internal Revenue Service (IRS) rules and regulations is essential to any business. 

The IRS requires three key criteria to be considered an accountable plan;

  •  The expenses should have a documented business purpose,
  •  Required employee expenses are incurred or paid in the course of their employment and adequate accounting for those expenses must be provided to the employer. That is achieved by providing both a statement from the employee as well as documentary evidence, like paper receipts. 
  • Employees must then return any remaining refund/allowance given in a timely manner as advised by their employers. 

Following and complying with these guidelines ensures businesses remain compliant with IRS regulations while keeping both employees and employers safeguarded against unnecessary risks.

Advantages of an Expense Report for the Small Business

Save Your Business From Extra Taxes

Taking benefit of tax savings can sometimes feel like a chore, but following the regulations and submitting expense reports is well worth it! Your business can reap significant tax savings by demanding that employees use accountable plans for their business expenses.

 Not only will corporate taxes be reduced, but the employees submitting expense reimbursement requests may also benefit from an income tax deduction. It’s a win-win situation – everyone gets a little extra money back in their pockets at tax season. So don’t waste any time; make sure you’re getting your due and taking advantage of all available tax savings today!

Easily Employee-Related Travel and Other Expenses

Small businesses can find tracking employee-related travel and other expenses difficult without a formal expense reporting policy. For example, if the airline starts charging higher fees, this can significantly increase your costs if you require staff or sales personnel to travel a lot.

 Similarly, some companies spend money on food for prospects or clients as part of their operations – but without an accountable expense reporting policy, this may not be easily monitored or documented. 

The good news is that with a well-defined expense reporting system, small business owners have visibility into those costs, allowing them to adjust guidelines accordingly and ensure their spending keeps them within budget.

Disapprove Doubtful Expenses and Prevent Fraud

Expense reports provide an essential window into a business’s spending and can help companies identify areas of overspending, ensuring money isn’t wasted where it shouldn’t be. Unfortunately, however, recent surveys tell us that an increasing amount of inappropriate or questionable expenses are being submitted – potentially costing businesses millions in fraud or misuse of company resources.

 Though some may be easy to spot – such as a yacht, a trip to Italy, and, believe it or not, even a pogo stick – other attempts at reimbursement may be less clear-cut and easier to slip through the cracks. Crayons for home-schooling supplies? Sure! Bed bug removal? No way! Companies must use caution when examining expense reports to prevent financial waste and the possibility of outright fraud.

What Should You Include in an Expense Report?

Keeping an accurate expense report is a crucial part of operating a successful business and ensures employees are able to document their incurred costs. 

An expense report should comprise the employee’s name, report submission date, reference number, their manager’s name, the period expenses need to be refunded for, and a comprehensive list including the date each expense happened, business bank account category on the chart of accounts connected with it (e.g. travel), the amount spent and description of what it was spent on and why, where possible receipts should also be included. 

By keeping thorough records, you will ensure all your employees’ expenditures are tracked effectively for compliance requirements and reimbursement purposes.

Guide to Creating an Expense Sheet

Read on to learn exactly how to create an expense sheet, step by step. 

Step 1: Select a Template or Expense-Tracking Software

The first step in creating an expense sheet is deciding between two options – using a template or utilizing expense-tracking software. A template is easy to get started quickly, while expense management software offers a more comprehensive way to track business expenses with automated features.  Whichever option you choose, make sure it’s right for the size and scope of your business. 

Step 2: Edit Categories and Columns as Required

Once you have chosen your template or software, start editing the columns and categories (like rent or mileage). If you’re using a template, customize it so that it fits your needs. With tracking software, you will likely find preset categories tailored to different types of businesses; if not, create custom categories that fit your particular needs. 

Either way, make sure all columns are clearly labeled so that anyone looking at the document knows what each column represents. 

Step 3: Add Items in the List With Their Costs

Now comes the fun part – adding itemized expenses with their associated costs! Start by inputting all relevant information into the spreadsheet or program – date of purchase, total cost, description of the item purchased, category/column it falls under – and then add up each column’s total cost as well as the grand total cost.

 This will give you a good overview of where your money is going each month and which areas require more budgeting and trimming.  

Step 4: Keep Copies of All Receipts

Keep copies of all corresponding receipts so that if any questions arise about certain transactions later on down the line, you have backup documentation available should they need further proof of purchase. This can be done in paper form or digitally; either way is fine but make sure that whatever method you use allows for quick retrieval when needed. 

Step 5: Print or Email the Report

 Lastly, print out or email yourself a copy of this report for future reference – but only after double-checking everything one last time! Once all these steps are complete and signed off on by authorized personnel (if necessary), you have an accurate overview of where your money has gone over a given period!  

Creating an expense sheet may seem like a daunting task at first glance, but once broken down into individual steps, it becomes much simpler to understand and execute properly. 

Whether using pre-made templates or dedicated programs like Quickbooks or Wave Accounting software, there are plenty of options available depending on the size and scope of your business needs – so don’t hesitate to explore them! With these five easy steps in place, anyone can easily create an effective expense sheet regardless of industry experience level! 


Small business owners have a lot to think about and keep track of. But don’t forget the importance of expense reports!  If you have never written an expense report before, hopefully, this article has given you some idea of how to get started. Be sure to check back on our blog for more updates and tips on financial management for small businesses!

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