As a small business owner, managing your expenses can be a full-time job. Juggling receipts, bills and invoices can cause you to drown in piles of paper. However, the importance of keeping your receipts organized cannot be overstated. At the end of the year, you’ll be glad that you’ve kept things in order when it’s time to do your taxes.
Here are ways to cut down on the clutter and get organized.
1. Get an organizational system
When claiming business expenses, especially those for things like entertainment or food, you need to have very specific information to report, including the business purpose of the event. But information is borderline useless unless you have ready access to it. Simply stating that you spent $200 on dinner for a new client isn’t adequate enough. You need to have the names of the attendees and their job titles, as well as the date of the event and the restaurant.
One way to record this information is to write it directly on the receipt. If writing it on the receipt doesn’t work, you can also look to record all of your appointments in an email. If you choose this method, you’ll still need to revisit the appointment after the fact and enter in the details regarding the price of the dinner. An even better method is to keep an accurate calendar that lists time, place and the people you met with.
2. Keep permanent records
The IRS requires you to keep receipts used for any claim for up to six years. Anyone who has receipts that are even a few months old will tell you that the ink fades pretty fast. Plus, what happens if your wallet takes a swim, or there’s an accident or natural disaster that makes your physical files unreadable?
With today’s technology, it’s actually very easy to address these issues. You can use your cell phone to snap a photo of the receipt, but make sure you can see all of the information clearly. You can also use a scanner to turn the receipts into JPEGs or PDFs. Converting your paper receipts to digital also saves you storage space.
Make sure to back up your digital files. A system crash that took all of your records isn’t an excuse that will fly with the IRS. It’s also a good idea to still keep the physical copy of the receipts as well, just as backup.
3. Categorize individual purchases (Not just receipts)
You might have a credit card specifically for business, and therefore assume that your credit card statements alone are sufficient for record keeping. Unfortunately, that’s not true.
Credit card statements are never itemized, so purchases you made, even at office supply stores, will simply look like large lump sums without the register receipt to accompany it. The IRS will want to see the details, which can only be found within the itemized record itself.
4. Better yet, keep everything
Unfortunately, this is just a cold, hard truth. While there is a precedent that it’s possible to rely on other “credible evidence” to justify a claimed expense—including IRS Publication 463, which states you don’t need to keep receipts for amounts under $75—the hassle of arguing with the IRS to make your case only eats up a lot of your valuable time, which you could have kept by holding onto receipts in the first place.
5. You (probably) need help
As mentioned at the beginning, managing expenses can be a full-time job and you may legitimately not have the time to handle it. It’s also possible that organizing receipts and expenses is not your strength, and that’s okay.
Receipt management options
In case you need a hand, there are programs available to make organizing your receipts that much easier. Here are a few that we recommend:
- Expensify: Expensify interfaces with more commonly used accounting programs, such as QuickBooks, making it even easier to take your receipts and import the data into your financial statements. You can manually add receipts or use Expensify’s mobile apps to snap an image and upload to the program.
- QuickBooks: You can snap pictures of your receipts and store them in the cloud, making it easy to track business expenses and be ready come tax time.
There are many more options for managing your receipts, but the best way to determine the right one for you is to review the different features and match them to your needs. Many of these programs do offer free trials, so you can make sure it really works for you before committing to using it full-time.
If organization is a business concern that applies to more than your receipts, you could be losing productivity to frustration from disorganization. Help yourself find those paperclips quicker by using these five steps to getting organized at work.