One of the least exciting parts of running a business is keeping track of your expenses – organizing your receipts and recording them somewhere. I know a few crazy people like me who like the numbers that get generated from doing this work, but actually doing the work, not so much.
BUT if you are ever going to get on top of monitoring your budget (and you seriously should) and keep the tax man happy then having a process in place for at least getting this information in one single spot is so important and will hopefully stop the nightmares around tax time. Once you are making enough money you would then ideally pass off this processing to a bookkeeper who would enter the information. I’ll share some tips on hiring a bookkeeper in another post.
I am big believer in outsourcing bookkeeping as one of the first things people should consider. Unless you are a bookkeeper or accountant yourself then doing your own accounts is time you could spend much more productively working on what you are good at in your business and more importantly what you enjoy. Of course if you love doing your own books, then go for it!
However, regardless of whether you have a bookkeeper or not, you are going to need to have a system for collecting those invoices together. Some may go to your bookkeeper for processing, but it is likely you are always going to have things that you have paid for, say on your credit card or in cash.
Depending on your work style and tech love there are a few solutions to getting organised. The methods have their pros and cons, but the most important thing is to pick the one that works best for you.
Paper file method
I was going to call this the shoebox method but didn’t want to get it muddled with one of the other options. Every time you pay for something, you put the paper invoice in the same spot. This could be a shoebox, an in-tray, a folder but it should be somewhere you keep handy. I like having mine in a spot I walk past when I enter my office as a prompt to put receipts in it as soon as I walk in the door. If you are buying online then I recommend printing out the invoice immediately if you are using this method (and have access to a printer). If not then make sure you save a copy to a dedicated folder on your computer, tablet or phone and set aside a regular time to print these out. Pros: No special technology required and it gives you an excuse to go to your favourite stationery store. Cons: You will still need to enter the information eventually for things like tax purposes and you may blow your budget at the stationery store (or is that just me?)
Photographing with your phone
If you are constantly losing invoices when out and about then another alternative is to photograph the invoice with your phone and save them in a folder – I like using dropbox for this. I still like keeping the hard copy but in some jurisdictions, you may find the tax office accepts electronic copies and you can bin the original paper version . Just make sure you confirm electronic copies are acceptable with either your accountant or tax office and check if there are any specific requirements for those electronic copies. Pros: You can do it on the go and it is simple to implement. Cons: You may still need to enter the data depending on your accounting system and you need to make sure your data is secure.
Using an App
This is the souped-up version of method 2. Not only do you store the receipt electronically but there are applications out there that then allow you to categorise the invoice to what type of expense it is. There are quite a few options out there so have a look at this review as a starting point. If you are using an accounting system, check that the app integrates with what you are using and some accounting systems offer their own apps.
You will see mentioned in the review, an app call shoeboxed. The app is offered by a company that will also do data entry for you. This data then integrates with different accounting systems. The service isn’t free but it may be cheaper than hiring a bookkeeper to do the data entry. You may still want to then use a bookkeeper for more technical tasks like reconciling your bank accounts and preparing your financial reports. And shoeboxed aren’t the only ones offering this service so shop around if you do want to go down this route. Pros: You can do on the go and you start to categorise and get data together. Cons: You need to make sure your data is secure. And there is more set up work. Some apps will have a cost.
If you are using a credit card then you can use the information on the statement for monitoring your budget and in some cases you may be able to use it as evidence for tax purposes. If you are going to use it for tax purposes, then as with the electronic receipts, make sure you talk to an accountant or tax office first to check it is accepted as evidence where you live. Tax laws vary so much that while I would love to give a definitive answer, it is just not possible. Here in Australia the Tax Office has a helpline that is free so you can give them a call if you aren’t clear about anything and their website can sometimes be helpful for answering questions as well. Remember that the answer may be different if you are registered for GST, VAT or sales tax, so if you are, flag that with the person you are talking to.
What method are you using for collating your invoices? Have you found one that works for you?
And if you would like some help getting your finance systems all set up don’t forget to check out my money argh to money aah package – a great alternative when you aren’t quite ready to outsource your bookkeeping.
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