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Money / Financial management

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!

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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.

"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."

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.

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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 further 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

is a Chartered Certified Accountant & Xero Accounting Advisor specialising in moving businesses to the cloud, improving productivity and profits. She's written six books including Xero for Dummies & Learn Small Business Start-Up in 7 Days.

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