Getting Down to Business!
Keeping your financial documentation for a home based business can be easy. I recommend you use an accounting software such as Quickbooks, or work with a professional bookkeeper or accountant for your accounting needs. As far as organizing the paper documentation is concerned, I recommend you have three types of files; Accounts Payable, Accounts Receivable, and Administrative.
Accounts Payable
For bills that have not been paid yet I recommend one of two systems. Choose the one you think you are most likely to maintain. The first system is to simply have a “To Be Paid” file where you stash all the bills that still need to be paid. Maintain the habit of paying the bills every Friday. That way you don’t miss any deadlines. The second system is to have some sort of a tickler system such as 31 files numbered 1-31. Keep in the habit of filing all active paperwork into the date (number) you are committed to taking action on that paper. Active paperwork is any piece of paper that comes across your desk that represents a task you need to take care of-including bills. Then each morning you pull out that days file and take action on the papers it contains.
Once bills have been paid, I recommend you file them in a monthly file. Maintain a file for each month of the year. Dated financial paperwork such as sales receipts, debit/credit slips, bills, and financial monthly statements should be filed together in the month it is acquired. Then, when it’s time to reconcile the statements, you have the bank statements together with the receipts, debit/credit slips, and bills for easy reconciliation. Most small businesses reconcile their bank statements and then don’t use them again until tax time. Once you have entered the data into your computer, or had your bookkeeper do it, you can use your monthly balance sheet and profit and loss reports for business planning purposes. For IRS audit purposes you should staple the receipts and bills to the bank account statements or credit card account statements they belong to. It will make things significantly easier on you if the IRS ever audits you.
When it comes to your debit slips, credit card slips, or check duplicates you acquire, you need to ask yourself, “Under what circumstances am I going to use this again?” Oftentimes there is no need for it after you reconcile at the end of the month. If there is a specific circumstance where you will use it again, keep it in your monthly file stapled to the statement it belongs to. If there is no circumstance where you are going to use it again, shred it.
Accounts Receivable
Maintain a file labeled “To Be Deposited.” This can be your collection plate as money comes in that needs to be deposited.
Enter your invoices and payments-received into your computer.
Keep a copy of the invoice with the client’s file if you have one.
Accounts receivable will have cash/check deposits and merchant credit card credits to document. Do the same as you did with your accounts payable. Maintain a file for every month of the year. As you collect payment documentation, file it in the month it was paid. Things such as copies of checks and deposit slips, your credit card payment slips for payments you received, your merchant account statements, your merchant reports for the month etc.
It is a good idea to make a photo copy of checks and deposit slips for each deposit. Make a note of what each check was for. Then if there are questions on where the money came from for each deposit, you will have that breakdown available in your files.
If your business processes credit cards, it is a good idea to keep a monthly report of all payments you received via credit card. Be sure to include documentation of what the payment was for. If you have your copy of the credit card slips to file, I recommend you staple them to the merchant account statement they belong to when you reconcile the statement.
Depending on the volume and nature of your business, you could combine the payable records with the receivable records into one set of monthly files as long as you keep all the little slips stapled to the appropriate statements. You are going to need them all combined at the end of the year for your accountant anyway. If you process a large number of transactions, this isn’t a good idea for you. You’ll want to keep them separate.
Administrative
You’ll want a file labeled “Financial Reports” where you keep all your month end reports, profit and loss reports, balance sheets, etc. This information will be used from time to time to track your business and to make effective business plans for the future. You’ll want these reports at your fingertips on a number of different occasions so don’t combine them with your monthly files.
If you have acquired a loan for your business, you’ll want a file for the particulars of your loan. Your monthly payment documentation can go in the monthly files with the rest of your accounts payable. Your original loan agreement would go in its own file.
I know this is not the traditional method for managing your accounts payable and accounts receivable documentation. This method minimizes the motions in filing away your documentation, retrieving your documentation, and preparing your documentation for your accountant. Before you balk at the suggestions, think carefully through the operations and the processes that your financial documentation goes through. Decide for yourself if this way makes more sense than the way people have done it for generations.
I hope you find success in implementing these quick ideas. You'll be amazed at the amount of time and effort you'll save!
Accounts Payable
For bills that have not been paid yet I recommend one of two systems. Choose the one you think you are most likely to maintain. The first system is to simply have a “To Be Paid” file where you stash all the bills that still need to be paid. Maintain the habit of paying the bills every Friday. That way you don’t miss any deadlines. The second system is to have some sort of a tickler system such as 31 files numbered 1-31. Keep in the habit of filing all active paperwork into the date (number) you are committed to taking action on that paper. Active paperwork is any piece of paper that comes across your desk that represents a task you need to take care of-including bills. Then each morning you pull out that days file and take action on the papers it contains.
Once bills have been paid, I recommend you file them in a monthly file. Maintain a file for each month of the year. Dated financial paperwork such as sales receipts, debit/credit slips, bills, and financial monthly statements should be filed together in the month it is acquired. Then, when it’s time to reconcile the statements, you have the bank statements together with the receipts, debit/credit slips, and bills for easy reconciliation. Most small businesses reconcile their bank statements and then don’t use them again until tax time. Once you have entered the data into your computer, or had your bookkeeper do it, you can use your monthly balance sheet and profit and loss reports for business planning purposes. For IRS audit purposes you should staple the receipts and bills to the bank account statements or credit card account statements they belong to. It will make things significantly easier on you if the IRS ever audits you.
When it comes to your debit slips, credit card slips, or check duplicates you acquire, you need to ask yourself, “Under what circumstances am I going to use this again?” Oftentimes there is no need for it after you reconcile at the end of the month. If there is a specific circumstance where you will use it again, keep it in your monthly file stapled to the statement it belongs to. If there is no circumstance where you are going to use it again, shred it.
Accounts Receivable
Maintain a file labeled “To Be Deposited.” This can be your collection plate as money comes in that needs to be deposited.
Enter your invoices and payments-received into your computer.
Keep a copy of the invoice with the client’s file if you have one.
Accounts receivable will have cash/check deposits and merchant credit card credits to document. Do the same as you did with your accounts payable. Maintain a file for every month of the year. As you collect payment documentation, file it in the month it was paid. Things such as copies of checks and deposit slips, your credit card payment slips for payments you received, your merchant account statements, your merchant reports for the month etc.
It is a good idea to make a photo copy of checks and deposit slips for each deposit. Make a note of what each check was for. Then if there are questions on where the money came from for each deposit, you will have that breakdown available in your files.
If your business processes credit cards, it is a good idea to keep a monthly report of all payments you received via credit card. Be sure to include documentation of what the payment was for. If you have your copy of the credit card slips to file, I recommend you staple them to the merchant account statement they belong to when you reconcile the statement.
Depending on the volume and nature of your business, you could combine the payable records with the receivable records into one set of monthly files as long as you keep all the little slips stapled to the appropriate statements. You are going to need them all combined at the end of the year for your accountant anyway. If you process a large number of transactions, this isn’t a good idea for you. You’ll want to keep them separate.
Administrative
You’ll want a file labeled “Financial Reports” where you keep all your month end reports, profit and loss reports, balance sheets, etc. This information will be used from time to time to track your business and to make effective business plans for the future. You’ll want these reports at your fingertips on a number of different occasions so don’t combine them with your monthly files.
If you have acquired a loan for your business, you’ll want a file for the particulars of your loan. Your monthly payment documentation can go in the monthly files with the rest of your accounts payable. Your original loan agreement would go in its own file.
I know this is not the traditional method for managing your accounts payable and accounts receivable documentation. This method minimizes the motions in filing away your documentation, retrieving your documentation, and preparing your documentation for your accountant. Before you balk at the suggestions, think carefully through the operations and the processes that your financial documentation goes through. Decide for yourself if this way makes more sense than the way people have done it for generations.
I hope you find success in implementing these quick ideas. You'll be amazed at the amount of time and effort you'll save!
posted by Christi Youd at
9:17 AM
