New Business Organizing Tips: Step 5 – Financial Files
April 6th, 2009 by Stephanie Shalofsky
As a new business owner, there will be many expenses related to your company’s start-up and ongoing operation that can be deducted thus reducing your tax exposure. However, before your accountant can work his/her magic, you will need to maintain a record of all of your expenses and have proof of the expenditures incurred during the year. While the suggestions that follow may not be applicable for filing 2008 taxes as the filing deadline is on the horizon, this is the perfect time to set up a well structured system for 2009 and the years to follow.
The system that you adopt need not be overly complicated….in fact, the simpler, the better. If not, the tendency will be to constantly postpone making new entries and filing the corresponding documentation. While it is always a good idea to seek input from your financial advisors when establishing a system for tracking your expenses, the following suggestions will provide you with a good foundation for developing a system that should work for both you and your accountant.
Some tips to consider when establishing your system are as follows:
What to do with all those RECEIPTS?
While it may be very tempting to just toss receipts on your desk and ignore them, some action is required to contain them. If not, the pile will continue to grow and spill over onto the floor. Since many receipts are typically small pieces of paper, they are easily lost. The best approach is to establish a place in your office for collecting receipts. Once you have settled on the location, then it is essential to choose an appropriate vehicle for collecting this paper. For example, an envelope in the vertical file on your desk may be the solution. Or possibly a decorative storage box on your file cabinet might be better suited to your situation.
Once you have a place to collect the receipts, it is necessary to establish a schedule for entering the information into your tracking system and filing the receipts. The frequency for addressing both tasks will be dependent upon the volume of paperwork collected during the course of a month. Hence, this may be a task that needs to be done weekly or monthly but at a very minimum should be done monthly.
How best to TRACK your expenses?
Before neatly filing away your pile of receipts, it is imperative to create a method for keeping track of your monthly expenses. The volume of information to be tracked will dictate the best method to be utilized. From the most simplistic to more complex, the choices include ledger paper and pencil, an excel spreadsheet or an accounting software package. It is probably best to start with the spreadsheet approach as the information can be easily tallied and manipulated. If you are unsure as to which method is best for your business, this is a good time to discuss the options with your accountant.
Regardless of the method selected, your expenses should be recorded each month. The information that you will want to track should include date of expense, vendor, amount, description of item/service purchased and method of payment. While the amount of time required to enter each month’s data is not significant in the big picture, the amount of time required to enter an entire year’s data at one time will be. So if you don’t address this task at regular intervals during the course of the year, you will have to dedicate a few day’s worth of time at the end of the year, in all probability when you can least afford it, to get your financial data in order.
Where to FILE all those receipts?
During your first year or two in business, an accordion folder should provide ample space for storing all of your receipts. They work well because they are self contained and do not take much space. In most cases, it is best to use an alphabetic filing system as it will facilitate retrievable at a later date. Most files come with the pre-printed labels just for this purpose.
If you have a lot of small cash register-size receipts from a specific supplier, you may want to set up an envelope with the supplier’s name clearly noted on it for them and place it in the appropriate slot in the folder. This will ensure that none of the receipts gets lost or mixed in with other papers in that same slot.
The only receipts which should not be filed immediately are those from your credit cards. These should be held until the monthly bill is received. At that time, the receipts should be collected and attached to the bill prior to payment and filing.
While the alternative to setting up a system for tracking/filing your receipts may be collecting all your receipts in a shopping bag and letting your accountant sort them out at his/her hourly rate, this definitely isn’t money well spent when you could have easily set up as system for addressing this issue yourself.
