Resources & Articles
Resources & Articles
I have heard from more than a few clients that they don’t want to wait this long next year to file their returns and that they want to get the house in order going forward. Let’s unpack how to get your business organized so that you can focus on growth instead of scrambling to meet a filing deadline.
Someone has to do the accounting. I know how boring that sounds. There's no escaping it, however. First, what is an accounting system? At the root of it all, it is simply a tool for summarizing lots of transactions. That could be an Excel spreadsheet. It could even be one of those old school super-wide green ledger sheets. The tool isn't important save for two items.....first, that it can handle the transactions that your business generates and second, that it is easy enough to use that you will use it consistently throughout the year.
The two most popular options are QuickBooks Online and Xero. Both will allow you to connect your bank account and business credit cards so that you can import transactions directly from your bank. Both have strengths & weaknesses. QuickBooks is very highly developed and looks good. It's also the most popular so finding a bookkeeper to assist you will be easy. Xero is much simpler and more focused on the core task. It is also built around the idea of plugging in other apps and services. Xero is the less expensive option. I can retrieve data and support either platform, as I am a QuickBooks Pro Advisor and a Zero Certified Advisor.
With an accounting system in place, let's talk about receipts. Yes, you do need to keep receipts. Receipts should document two things.
The second may be patently obvious. For example, if you're a CPA firm and you spend money at Staples, that's probably enough because it’s obviously office supplies. But what about an Amazon purchase? Or a restaurant? For these, a quick note on the receipt will suffice...."Lunch w/ Bob Smith to discuss new business venture", or "New wheels for office chair".
Imagine the old school shoe box full of receipts. Just toss your receipts in the box and forget about them. You have an accounting system in place to add them all up. Unless you are audited, you probably won't ever need to open the box. Also, the shoe box is probably digital today. DropBox, OneNote, Google Drive and many other cloud storage systems will store digital copies of your documents. You don't even need to sort them into folders or tag them because you have an accounting system for that.
You will inevitably have transactions that fall outside of your accounting system. For example, you may pay for an item with cash, or a personal card. For these, your business should reimburse you. Again, there are lots of options for this. I use Expensify and am an Approved Partner and Advisor. This is an app that was designed for corporate employees to produce expense reports. It does a great job of capturing and summarizing expenses.
Driving around for business could be your biggest expense item. Tracking it is also very easy with many options to choose from. QBO, Xero and Expensify all have the ability to track business trips. For business use of your vehicle, you have two options....
With either option, you still need to track your miles. Regulations say that we need to keep a contemporaneous record. That means that we create it as we go along, and not make it up a year later when we need to file a tax return. Once again, this may not be as hard as it may first appear. By combining the information in your accounting system (where you spent money) and your calendar (where you met customers and others), you will probably have most of this work done. Using an app or other system to track trips that are outside of your normal routine will fill in the blanks. Whatever system you use, use it consistently.
With a functioning accounting system in place, you will have data that is much more useful than simply complying with your requirement to file a tax return each year. You can use that information to run your business more profitably.
Set goals and use your accounting data to keep you on track to meet those goals. KPI's or Key Performance Indicators will tell you if you are ahead or behind your own expectations. Identify what those KPI's are for your business and monitor them regularly. It's been my experience that almost every successful business owner knows what their KPI's are even if they have never used the term. The point is to quantify and plan for success. Make time to update your accounting on a schedule that makes sense for your operations. Some interval between weekly and quarterly should keep you on track.
If you've made it this far, you probably noticed a recurring theme.....You have lots of tools available, pick the one that is easiest to use and use it consistently. It's really that simple. In fact, if you consistently use an app with fewer features, you will be much better off than with a feature-packed app that you only open a few times per year.
Let me leave you with one more thought in closing.....Don't expect to go from a train wreck to perfection overnight. Fix a few things to start with and build on that success. You'll be much more likely to get organized with incremental improvements rather than a quick fix for everything at once.
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