The Perfect Approach to Categorizing Expenses for Canadian Makers and Creators

In Books Club — the weekly co-working group I host — one of the first challenges that many new members want to overcome is how to get a handle on categorizing their business expenses. Frequently they’re staring down mountains of bills and receipts (paper, digital, or both!) that have been steadily piling up for months or even years. This is true of members who are just starting out in their businesses and seasoned makers and creators alike. To be fully transparent, even I get bogged down by it from time to time!

We get stuck wondering things like, “What should I focus on first?” or “What’s the best way to organize this crap?”.

When you’re unsure what to do, it’s hard to move forward. 

The good news is, you can easily bring order to the chaos by creating categories for your expenses that make sense to you.  

In this post, I’ll define what categorizing expenses means and provide 3 suggestions for getting started. I hope that this will give you a roadmap so you can get started with an approach that works for you, and makes categorizing your expenses for Tax Season considerably less stressful next year.

What is the perfect approach to categorizing your expenses?

If you’re trying to force yourself into a particular app or process that doesn’t make sense to you, you’ll never use it. 

In other words:

The best or “perfect” approach is the one that you can stick to.

The added benefit is that when you work a system that plays to your strengths, you’ll get faster at categorizing your expenses and be able to quickly get back to what you’d rather be doing!   

Take the Path of Least Resistance

When you’re figuring out the best “tool” to use for the job, choose the one that will make it as simple and easy as possible for you. (That’s the whole point of a tool, after all!)

This is a crucial component because it doesn’t matter how or where you keep track of your expenses, so long as it ultimately gives you a snapshot of how much you spent and what you spent it on. 

Many makers and creators who are new to running a business start out using the tool their accountant wants them to use, but then get stuck because it’s not intuitive to them. Or worse, more than (or too complicated for) what they need at the current stage of their business.

And then they wind up procrastinating until suddenly April rolls around and they still don’t have anything they can give to their accountant! 😱

The key to categorizing your expenses is to use whatever comes easiest to you… or fills you with the least amount of dread. 

To get started here, forget what your accountant wants. 

Is QBO too much or too powerful for you? Download the data and cancel the subscription. Are spreadsheets your jam? Fire one up. Do you find joy in putting pen to paper? Crack open one of those notebooks or planners you’ve been saving for a rainy day. Today is that day!

Categories, not Scattergories

When I say “categories”, I’m referring to what your accountant calls “expense accounts”. Or maybe you’ve heard the term “line item”. There are some standard ones that most people recognize and understand (ex. office supplies, rent, etc.), but they were literally created 800 years ago and the accounting profession isn’t exactly known for embracing change. 

A lot of accountants hate it when their clients come up with their own names for categories… but honestly, it doesn’t matter what you call them, as long as you’re consistent about what falls into them. Your categories don’t have to be super specific, but they shouldn’t be scattered, either. 

If you’ve spent hours being a slave to how your accountant wants your expenses presented to them, but something still feels off — like you have no idea what category your kiln fees belong in — this is likely the piece that’s missing. 

So what can you do?

A really useful technique for coming up with your expense categories is to look at them from a 30,000 foot view. 

Think broadly about the kinds of things you’re spending money on and create categories for them. Don’t worry about granularity — you can always zoom in later if you need to. 

Pro-tip: Don’t let the pendulum swing too far the other way. There is no such thing as a category with words like “Other”, “General”, or “Misc.” in its name!!! If you’re really not sure where to put an expense, this is where you can create a more specific category. (Kiln fees, anyone?)

Here are some examples of business expense categories that I see frequently with my Maker and Creator clients:

• You might have monthly payments for Shopify, Zoom, MailChimp, Google Workspace, and Canva. They all serve very different functions, but from a 30,000 foot view they’re all subscriptions.
• Bubble mailers, packing tape, shipping labels, postage, and import/export duties are all shipping expenses.
• Graphic designers, virtual assistants, and tech editors could fall under professional services or subcontractors — whatever makes the most sense to you.
• Website hosting, domain names, business cards, gifts for clients (except food, beverages, or entertainment), and sponsorships are advertising and promotion.
• Paypal, Square, Stripe, and Etsy fees could fall under platform fees or payment processing charges.

Rhythm or Blues

When it comes to keeping track of your expenses, you can either have a rhythm or have the blues. There’s no in-between. Getting into a rhythm is when you’ll really start to see and feel how relieving it is to have your receipts and expenses organized year-round.

Of course, like any new skill, finding the rhythm that works for you takes time to develop.  Consider setting aside some dedicated focus time. 

One approach you can use to enjoy some alone time with your expenses is:

• Decide how frequently or regularly you can realistically commit to categorizing your expenses (ex. once a week, twice a month) and for how long (1 hour, 2 hours, etc.).
• Then book your first 3 or 4 “dates” with yourself. Put them directly on your calendar and mark yourself as busy. 
• Then, in order to get your first batch of expenses organized into your handy-dandy tracking tool, just keep that date with yourself! (And have some fun with it! Categorizing your expenses doesn’t have to be a completely mind-numbing endeavour. Play some music, light a candle or some incense, head to your favourite coffee shop, or have your favourite fidget toy nearby… whatever you need to get yourself in the “mood”.)

Once you’re done,  you’ll be well on your way to having all your expenses ready and categorized to hand off to your accountant at the start of Tax Season, instead of scrambling to get it all together in the last couple weeks of April. 🎉 

It may sound like a lot, but like most things practice makes perfect. Just focus on one week’s worth of expenses at a time. This will help you ease into tracking everything and figure out with the tool you’re using and the categories you’ve created are actually working for you. 

What’s next? Join Books Club!

If you need help getting started, my weekly co-working group, Books Club, will help you carve out regular time on the calendar so you can get your expenses categorized more consistently. You can also ask me questions in the Members Area if you’re not able to make the sessions live.

Join Books Club