Thursday, January 8, 2009

We must all suffer from one of two pains: the pain of discipline or the pain of regret

We must all suffer from one of two pains: the pain of discipline or the pain of regret. The difference is discipline weighs ounces while regret weighs tons

Jim Rohn, Motivational Coach

So Your Books are a Mess - Now What?

Most business owners have good intentions when it comes to record keeping. One could easily compare maintaining business finances to maintaining physical health. After a physical, most people will come up with some improvements such as exercising, less fried food, less deserts, and so on. After a yearly tax visit with an accountant, many well-intentioned business owners assert that they will become detail-oriented and start keeping up with QuickBooks, balancing the checkbook, and so on.

But now here it is a new January of a new year, and most of last year's promises have long been broken. Once again, business owners all over the country will have to eventually face their accountants with shoe boxes full of 'keeper' receipts. There may be an outdated QuickBooks file or a half-completed Excel file. There may be some bank deposit slips, some partial payroll records, and some tax documents from throughout the year. Whatever information is supplied, it is going to cost five to six times as much as it should because your accountant will be relegated to examining all your paperwork and entering records him or herself. At over $100 per hour, business owners will surely feel the pain.

I would be remiss if all I did was give instructions on how to do better next time. That will be another lesson for another time. This article covers what to do if you have gone all year long and not done a bit of bookkeeping. These tips will reduce the burden on your accountant and the subsequent costs to your business. Here are seven basic steps to start taking this week to save everyone time, money, and a lot of heartache and frustration.

Organize receipts into monthly folders. Go to Staples (or your favorite neighborhood office supply store) and buy yourself a box of at least 12 manila envelopes. Label one envelope for each month of the year. Place your receipts in the month of the date of the transaction. Obviously, this is nowhere near 'organized' but it does at least give you a starting point.

Get listings of all transactions for each month. Hopefully you will be able to do this on line. Go to your bank website. Once you log in to your account, click 'download transactions.' One month at a time, download the transactions to a comma delimited text file, which you can open in Microsoft Excel or Open Office Calc. It is very important that you not only get your bank account statements, but also any statements for business credit cards that you pay from your business checking account. If, God forbid, you have mixed personal and business expenses in the same account, you will need to download all of them and sort through them in the next steps.

Come up with category names for your transactions, keeping it very simple. For instance, any deposit you made to your account will be called deposit. We won't worry about the sales numbers yet. Divide up your expenses into simple categories as well, such as rent, materials, utilities, labor, outside services, meals & entertainment, payroll taxes, loan payment, credit card payment, etc.

Spend 15 minutes per day, five days per week, going through your Excel file of transactions, categorizing each with the names you came up with in step three. It is important to be diligent on this step, even though it's painful. The more accurately you can categorize your transactions, the better off you will be. The fifteen-minute limit is to prevent you from feeling overwhelmed and going insane. If there is a transaction you don't have a category for, make the line yellow in Excel to draw attention to it.

Find receipts and documents to prove all transactions. According to the IRS, you need receipts for any expense over $25. Month by month, go through your categorized list and look for the receipt, invoice, or other document that proves each transaction. It is important to stick to the fifteen minutes per day. In the column to the right of your categories, put an X if you find the
proving document.

Find all your deposits for each month. Take those deposit numbers, and figure out where they came from- sales, loans, etc. Balance the sales figures you have for a given month with the deposits. If you operate with invoices, this may become difficult because deposits will be from sales in previous months. If that is the case, just ensure that you have determined if a deposit is from sales or something else. Note that in the category.

Reconcile your balance for each month. Do this just as you would any other checking account.At tax time, you can give your envelopes and your Excel files to your accountant. If you are feeling motivated, you can purchase a copy of QuickBooks and enter all your information; month by month; yourself. Then you can give your accountant your QuickBooks file and save even more money!

So go gather your 2008 data and start sorting. Oh, and while your at it - start 2009 off right by sorting, categorizing, and reconciling transactions as they happen. If you need a little extra help, visit ( for more tips.

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You are not entitled to your opinion. You are entitled to your informed opinion. No one is entitled to be ignorant.

Harlan Ellison