This is a scary question. Is your financial disorganization costing you? Or worse, how much is your financial disorganization costing you (because if your finances are not in order, I can virtually guarantee it is costing you something).
Do you struggle to keep your financial paperwork under control? Do you have little piles of receipts all over your office, or are they shoved in a box to hand over to your accountant at tax time?
There are two secrets to keeping on top of it all so you are not missing important deductions and your poor accountant is not pulling their hair out at the end of the year!
- Set up a filing system that is easy to use and accessible.
- Do a little bit often.
Setting up your filing system
Paper systems
The simplest filing system mirrors your accounting system. The categories you use when entering your expenses into your accounting system will be the same ones you use for your filing. Make a folder for each category of spending you get receipts for. Now each week, after you enter your receipts and invoices into your financial tracking system (ledger, spreadsheet, Quickbooks, etc.), simply drop the receipts into the appropriate folder. You will keep track of your spending and your income and know where you stand each month.
If you have a book-keeper, be sure to have them come in at least monthly to take care of your accounts. Collect all the receipts and invoices for them to process in one place and have the book keeper file the receipts as they are entered into the financial tracking system. Help them out by writing on your receipts the category in which they should be placed.
To make the end of the year simple, keep receipts and invoices for each financial year together and collate the previous year’s receipts and invoices at the beginning of the new financial year. Your organized receipts and invoices are ready to hand over to your accountant for taxes. If you have never set up your filing system before, see a suggested list of categories for small business owners from our website. This list is formatted to print directly onto Avery labels to fit 1/3 cut tabs on interior file folders.
If you are unsure as to which records to archive and how long to keep them, see our record retention guidelines. These guidelines are a guide only and do not constitute professional advice regarding your own particular situation. Please consult your own accountant and relevant professionals for advice specific to your situation.
Paperless options
If you want to set up a paperless financial records retention system, please consult with your tax advisor first. My sources tell me that the IRS is not consistent when it comes to accepting electronic records. In any case, it may pay to keep records that arrived to you in paper format. If you received the records in electronic format, there is no need to print them out and make them paper unless the IRS demands it. However, you do want to keep complete records. Quickbooks and most other software packages will let you attach a scanned version of the receipt to the transaction. This should be done on an ongoing basis.
It is much faster to search electronically than through paper receipts provided the receipts are either attached to the software entry or named appropriately on your computer. For receipts that you receive via email, print to pdf and attach those to the appropriate software entries. Alternatively save to a receipts folder on your computer. It is usually unnecessary to create folders for each receipt category on your computer as the search function faster than clicking through layers of folders.
In order to make the search function useful, title your files using the following convention:
{yyyy-mm-dd} {category} {short description} {$$-cc}
For example: 2013-01-31 Biz supplies Staples 35-87
Formatting your file names in this way means they will be kept in chronological order, you can search for all Biz supplies, or items bought from Staples, or for a particular amount.
Keeping on top of it all
It is important to keep on top of your finances. Forecasting and proper money management is impossible if records are not up to date. The volume of data you are handling will dictate the frequency with which you need to handle the financials. Solopreneurs and small business owners should make sure their records are up to date at least weekly, and more often if they have a high turnover of product. And if you find yourself continually putting it off, consider hiring a book-keeper or accountant part or even full time. If you decide to do it yourself, put an appointment in the calendar at the same time every week and sit down and get it done!
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