Small business record keeping: Dealing with the shoebox

As an accountant, at this time of year people start arriving at my door with a shoe box stuffed full of receipts. Some of you may be chuckling in disbelief while others are blushing with recognition of their own small business record keeping!

My view is paperwork can get out of hand as the owner is so preoccupied by running the business, the administration side slips. A small pile of paperwork gets gradually larger. You miss your first BAS payment and the record keeping continues to get neglected.

Then finally, around the end of the financial year, you bite the bullet and realise that something needs to be done. You feel overwhelmed and don’t know where to start.

Wasn’t bookkeeping supposed to be easy? How did it get so hard, what has happened?

Of course it makes sense to stay organised throughout the year, so come reconciliation time, you’re able to address the necessary tasks with a clear frame of mind. Here are some practical tips to help with small business record keeping and to ensure another financial year doesn’t slip by with only a shoebox full of receipts to show for it:

Purchase an accordion folder, or a lever arch folder with dividers and make sections for each of the financial year's 12 months.

Sort source documents* into the 12 separate months. If you are operating on a cash basis, the source document will belong to the month that you actually paid it.

Staple all small, store type receipts to an A4 sheet of paper for the month it occurred. If you want to be extravagant you may even designate different colour pages for different months.

Always use a red pen when writing on source documents and initial and date anything that you write. Keep your writing neat and legible.

Record the date you processed any transaction on the source document.

Clearly circle the date and payment amount.

Create a file in your email inbox called Finances with subfolders for the financial year and save all online financial transactions there for later retrieval.

* Source documents are the original record that captured the transaction such as cheque stubs, invoices, receipts and activity slips. The bank statement is the source document for bank charges because that is where the bank charges first appear. The bank statement is not the source document for purchasing computer software. You should have a separate receipt for that transaction.

To further reduce administrative burden, I have two furthr recommendations.

Firstly, use a dedicated business credit and debit card. I am not suggesting that you go to the expense of opening a business account. If you are a sole trader this may be unnecessary for you. But processing your records is going to be a lot easier if you have a personal debit card that you only use for business transactions, and likewise for your personal credit card.

Secondly, request that all statements, including debit card, credit card, and petrol accounts, are sent on a monthly basis. That’s because the key aspect of processing your financial documents is reconciling them on a monthly basis.

If you follow these two suggestions, nearly all of you income and expenses will be captured in statements from both your bank account and credit card account.

You will have sorted all your source documents into the relevant months and will feel better about entering them into your accounting software package, or handing them across to your bookkeeper or accountant.

Heather Smith, an MYOB Certified Consultant and Specialist Trainer, provides business management software solutions which generate accurate and timely financial information that the business owner can use and understand.

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Heather, your tips are great - it really does pay to get organised! A simple system (like you've suggested) is great, but I also think consistency plays a part. Freelancing - or any form of self employment - involves wearing many hats including bookkeeper, receptionist, sales and marketing expert, secretary, legal wannabe, IT tinkerer and general dogsbody and bin-emptier. This in in addition to developing and fine tuning our 'craft'.
Serious problems can arise, when, as freelancers, we resent - or worse - refuse to accept responsibility for these extra roles. Don't resent administrative tasks. Consider these responsibilites as vital to the health of your freelance career and bank balance. Allow regular times for all things maintenance and have solid systems and procedures in place. The reality is that you allow time to have the car serviced, your hair cut, or do the grocery shopping ... these same philosophies need to apply in business. If you're organised and efficient you'll find you have more billable hours anyway! As a Profesional Organiser, I've sorted many soloists and am still surprised to discover they think they can get away without doing the fundamentals like bookkeeping and filing.. like it's someone else job. It's not. It's part of the deal! Why not work smarter, not harder.
PS. Shameless (but relevant) plug: If you need more 'recipes' for sorting paper check out my new book, SORTED! avail 9th October for $20. Lissanne Oliver from Fairfield, VIC | Read my articles
Lissanne, thank-you for your positive words. The article was targeted at the soloist who are juggling and perhaps have missed a ball, the ball named bookkeeping. I was trying to give them some hope and some structure to get them across the line, and down to their accountants office. As a specialist I have a great respect for others who offer specialist advice. Lissanne I agree with what you have said that it is important for a soloist to take the responsibility on themselves, but I think they should also avail themselves to listen too and pay for specialist advice. I am sure I have the capability to learn how to build my own web site, but instead I have a specialist do it for me. I spent many hours working on the content and structure, before I handed it across to the web designer to weave his specialist magic. I think it is very important not to rely on ‘pub advice’ ~ that advice our mate Bruce gives out for free down the pub. As soloist we do wear many hats, but sometimes we need the services of a specialist milliner to create a sound hat. Heather Smith from Brisbane
Hi Guys,
I’m surprised by your surprise!
Maybe you are right and businesses try to wear too many hats but they don’t have to.
Businesses care about the business, how to sell, to get more customers, to generate more income, etc. They don’t have time or don’t care about the administration side of it. Majority of businesses don’t even know how to deal with it, find accounting and office management a daunting task.
We need to educate businesses by giving them useful tips, I do the same on my website www.theofficewitch.com.au . Well done Heather!
I'm very interested about your book. Could you send me some information about it. Thanks. Judit Nagy,www.theofficewitch.com.au from Sydney
I use a big envelope for all the 'source documents' for the month, then seal it. After that, it's all a mystery! Grant Hyman from Sydney | Read my articles
Grant,
Outsourcing is great and what a relief! Of course with that extra time you have on your hands, you are looking at your MMR's (Monthly Management Reports) ~ and using kpi's (key performance indicators) to better manage your business. Heather Smith from Brisbane
Hi Heather - nice article, thanks for the tips. I have a question... my accountant claims to operate a paperless office (it's true, and an amazing thing to see!). He says the Tax Office also wouldn't keep paper records of all transactions either (which makes sense) - so, can the same be said for us small-business owners? I'd ideally like to set myself up to scan every receipt, store them in an electronic version of what you described in your article, and shred / recycle the physical paper. Can this be done? Or does the tax-man get some sick pleasure from watching small businesses drown themselves under piles of paper?
Thanks for any feedback at all! Marc Fraser from Melbourne

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