Tax time is coming up and that stack of receipts in your shoebox is only going to fade a little more each day. Now is the time to use a simple system and get your home and business bookkeeping in order. You need to clear that box out by April 15th anyway, so as the saying goes, it’s time to swallow the big frog first.
As with all successful ventures in life, a little work each day or week makes the job so much easier. The hard part is creating the habit every day or every week to get the job done. You eat roast one bite at a time, so why are you trying to handle a year’s receipts on April 14th while you’re on hold with the Turbo Tax support line trying to figure out why the installation didn’t work? Let’s start eating last year’s roast now, and let’s start our 2010 roast as well.
The system is very simple, and the hard part is getting people to commit the time every day. One of the paradoxes of organizing is that you get more time. When you have more time, you are tempted to take on more work and at some point you lose connection with the habit that time created. I jump up and down and yell and yell at business owners when they do this. A well-run business is like a well-designed clock. It doesn’t take a lot of effort to make a business work well when it works well.
This is exactly the system we build for our clients. You can send us an envelope with your receipts and a check, or you can follow this simple system.
Are you ready for this?
The three main things to do are:
1. Buy the equipment,
2. Set up the system and
3. Start putting your clothes together.
If all goes well, tax season in the spring of 2011 will be as simple as:
1. Install TurboTax,
2. Fill in your information,
3. Import the data from Quicken or Quickbooks and
4. Click e-File.
1. Buy the equipment. 3-5 hours total if you go to Office Depot, less if you buy online.
First you need a computer. A Mac is fine, sadly Quickbooks is much better on PC for some reason and so everything here is PC related. If you run a business, you can get a small HP PC and just use it for accounting and the costs won’t be that high, even if you’re a Mac shop.
The next thing you need is software, I admit, although we are not a “certified” Quickbooks partner, but Quicken and Quickbooks are the only way to go. They should really send me a cut.
The second thing you need is a scanner. Clean receipts used to be a requirement for our customers, but the new Quicken has an attachment feature so you can scan the copy of important prescriptions right into the Quicken line item with a right click and scan. The HP 6100 series all-in-one printer-scanners have been tested, as have the large xerox network all-in-one scanners, and work well.
Finally, you need three to twelve file folders. I like it simple, so three is enough, and if you want more, you can use all twelve. My goal as a business coach and environmentalist is to aim for a paperless office. Less storage means more efficient use of office space and less waste.
So the shopping list is really that easy, and you can probably use what you already have if you want.
1. 2 GB ram small PC suggested, scanners are slow if you get less, with monitor and keyboard. If you can afford it and have desk space, get a Quad Core PC and two 24″ monitors. We like HP PCs and Samsung monitors. If you’re going to hire someone, get smaller monitors for easier remote access.
2. Copy of Quicken (Home Use), or Quicken Home and Business (Small home-based business) or QuickBooks (Own an office and 1 or more employees)
3. Scanner, (we suggest network ready so you can grow)
4. Three packs of file folders.
That’s all the equipment, software, and materials you need to make the system work. It’s not that bad?
Configure the system. 2-3 hours
If your PC is new, most of the time you may end up setting up the PC. Quicken and Quickbooks load reasonably quickly, as do most scanner apps. After Quicken or Quickbooks is loaded on your PC, start by entering your business information. The only question you need to know now is “Cash” or “Accrual”. If you’re just starting out, consider selecting the cash basis, you can always switch to accrual later. If you find that you need to go the other way, it’s much more difficult. One of our advisers says this: “Your books should be on a ‘cash’ basis, your filing with the IRS should be ‘accrual’.” Quickbooks allows you to do this.
Next, it’s time to connect your checking, savings, and credit cards to your Quicken or Quickbooks software to make automatic updates work. This greatly reduces the workload and you will pay for the software in a matter of weeks. If you haven’t already, I suggest stopping here and separating your home and office credit cards. I realize that is exaggerated, I have two American Express credit cards and two Master cards. One for the home and one for the office. It makes life much easier when it comes to classifying receipts.
Test the scanner to make sure the accounting software will communicate with the scanner.
Here is the process as we run it first for our clients and second for my home.
Start the clothes. 1-2 hours per week, an additional 8 hours at the end of the year to do everything including taxes if you follow this.
The first step in making the system user-friendly is to convert all suppliers and all possible invoices online or electronically. Emailing your invoices and accepting ACH (electronic) payments from your customers reduces paperwork clutter from the start.
The next step relates to credit card receipts. Every time you buy something, write the tax code or customer line at the top. For example, whenever I have a sales meal, I write Meals 50% at the top. If I have a staff meal, then I write Meals 100% at the top. If I stop at a big box store and buy parts for a customer, I type COGS-Customer Name.
As a business owner or manager, there are some accounting basics you need to understand. COGS or cost of goods sold is one such concept and knowing the legal difference between 50% meals and 100% meals is another. The list really isn’t that long, and most are pretty obvious, like fuel and vehicle maintenance. A little practice and it becomes second nature. If you want to make things like fuel easy, get a fuel-only credit card for each company vehicle and that item is automated, too.
At the end of each day or the beginning of each day, whichever you choose, all receipts go into an envelope that is mailed to us every Friday, so you choose a day each week to schedule an hour or so to get these receipts entered. All your checks also go in this envelope. The three folders are for receipts for the current month and the last two months.
When you sit here is the checklist for the receipt box each week. If you’re a very small business, you can try monthly, but my experience is that no one can create a “monthly” habit since invoices are due on a different day of the week each month.
1. Run all bank updates
2. Compare all receipts with the bank download and accept.
3. All receipts that are not downloaded are returned in an envelope for the next week
4. Any receipts that have a chance of being returned or are of high value are scanned and attached to the Quickbooks input line.
5. All receipts go in the month folder
6. If it is a new month, all receipts are shredded and the folder is moved to the front for the current month. If you haven’t returned it in 90 days, you probably won’t, and it’s important that you have a scanned copy anyway.
7. Pay all bills that are due that week, print any necessary checks, and try to get those vendors to use electronic payments.
8. Deposit all checks received the same day they are deposited.*
If you make a large volume of credit cards or large checks, you will need to create an “undeposited funds” account. When you grab a credit card or a large check, it can take five days or more before you can actually spend the money. The best way to stay out of trouble here is to use the Undeposited Funds account to track the money until it’s actually cleared from your account.
That’s it. If you want to see how your business is doing, take a quick look at the “Cash” and “Accrual” reports. You need to know both to understand what your business is doing. If you don’t know how to read the reports, hire a consultant or accountant to spend a few hours helping you. The material is not that difficult if you take a little time to learn to read it. Knowing how to read your reports could save your business.
As your business grows, this system can be taught to some fairly basic employees. As long as you keep track of the weekly reports, you’ll notice if someone is doing strange business with your money, just like you notice mismatched receipts. All business owners should watch their books. Like I said, I’ve noticed employees filling up gas for their personal cars when no one else has. I also noticed that one employee was using much more cable than other employees and found him on a Sunday doing “side work” with our cable.
For your home bookkeeping, the system is more or less the same, but we run it on a monthly basis. The first Saturday is our “financial day.” Working or not, we spend that night doing it and looking at our past month and the present month. You will be surprised what you find. We found that my two favorite drive-thru restaurants added a dollar and rounded up to the next highest dollar. For example, if I buy a $12.21 pizza, my credit card will be charged $14.00. Sorry folks, I do not tip when I order at the counter and serve my own table. That they charge you another dollar and change without knowing that it is not right.
We recently noticed that several vendors we use that asked us to use PayPal were charging a “surcharge.” Unlike regular credit cards that prohibit the practice, PayPal doesn’t and even has a line for it. As a business owner I like it, as a customer I’m sorry, we’ll use AMEX and I’ll keep the miles. You never know what you will find.
When you look at this process, it seems like a teenager can handle bookkeeping. The truth is, with the right setup, a teenager can do your bookkeeping, just keep an eye on the books, or you could end up spending a ton of money on iTunes.