Did you lose a week of otherwise billable time sorting through all of your credit card charges and paper receipts to work out how many of your purchases were business expenses? If so, it’s time to step up your organizational efforts and implement a system for tracking your business expenses in real time. Here are a few ideas for building a better system.
Create a business bank account. If you’re a sole proprietor with a new business, you may not have made it a priority to segregate your business and personal funds. If that’s the case, don’t delay it anymore: Put all of your business income directly into a business account, and use a business credit or checking account for any business-related purchases that can be paid by card. You can move money from one account to the other as necessary, but drawing a clear line between the two accounts will help you easily keep track of whether you’re making business or personal purchases. Creating a business bank account will also build up your business credit, which will come in handy if you might need financing in the future.
Stay on top of your receipts. When you get receipts for business-related purchases, store them in envelopes or shoe boxes and then file them in an accordion file, organized by month. If you’re audited, you may need these receipts as evidence of your business purchases.
Use an online calendar to note your expenses as they occur. An online calendar tool like Google Calendar can be used to set up notifications for recurring or one-time expenses. Use the event form to write down the type of expense (i.e., utilities, rent, contractor services), and the recipient of the funds. You can set up alerts to remind you to pay upcoming expenses before they are due, and you’ll be able to print out the entire calendar for reference when the next tax time rolls around. Bonus: Many online calendars, like Google Calendar, can sync with your cell phone, so you can even enter expenses on the go.
Use software to track and analyze your business purchases. Most accounting software programs provide options to create expense categories and link them to line items on your tax forms, which will reduce the time spent on preparing your tax returns. These programs can also be used to generate profit-and-loss statements, so you can easily assess the financial health of your business. Using software to track business expenses will save you a lot of time when April rolls around and you need to file your taxes.
Hire a bookkeeper. If your company is growing too big for you to accurately track all of your expenses, or if you simply don’t have a head for numbers, you may want to consider hiring a bookkeeper on a contract basis to spend a few hours each month going through your receipts and invoices and tracking them in accounting software. A good bookkeeper will generally cost anywhere from $20 to $50 an hour, which is well worth it if it helps you stay out of trouble with the IRS.