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Blog: Minimizing Financial Clutter
 52 WEEKS TO FINANCIAL ORGANIZATION - #32: A Place for Money
It happens every April.
Small business owners gather their prior year's business records to organize them for their tax preparer. They start making lists of their income and expenses by category. So far so good.
Until they stumble across transactions they simply don't remember. Was that UPS charge back in July for products she sent to a customer, or was it for the birthday gift she shipped to her mother? How about the Starbucks receipts? Were they for meetings with clients, or simply his normal morning caffeine run? And where did that $5,000 deposit come from? Was it really income (how could she possibly have forgotten that?) or was it money she transferred from her savings account when her checking account balance got low?
We all think we won't forget, but I guarantee you that we will. There is just too much information for us to keep it all in our heads, unless you are my cousin who has a photographic memory. The good news is that we can set up systems so we don't have to rely on our memory. Whew!
Separate Bank Accounts
No, not for you and your spouse. You need to set up a separate checking account for your business transactions. There are no excuses for not doing so. Sorry. Use your business checking account for ALL of your business transactions, and your personal checking account for ALL of your personal transactions. A business checking account is the MINIMUM requirement for your business. Certain professionals, such as attorneys, are also required to maintain an escrow account for client retainers. If you prefer to put business expenses on your credit card, you need to have a separate business credit card for those expenses. I used my trusty Brother P-touch label maker to make labels for my business credit card and my business debit card. It's easy for me to grab the right card when I go to make a purchase. Forget about paying cash for business purchases! Use your business debit card instead. Your purchases will be automatically listed on your bank statement.
Create an Expense Category List
Some things are obvious. Office Depot charges on your business bank statement are most likely for office supplies. Other expenses are not so obvious: Was the bill from the Hilton Hotel for lodging, or was it for meals at the hotel? (They are treated differently on your tax return.) To avoid mis-categorizing an expense, create a list of your usual business expense categories. The easiest way to do this is to use the categories that were on last year's tax return. Keep your list in front of the folder in which you keep your business receipts. Before you put a receipt in the folder, refer to your category list and write the category name on the receipt. Alternatively, you could have a separate folder for receipts for each category.
Tracking Income
We pay enough taxes already. We certainly don't want to pay taxes on money we didn't earn! That's why it is important to keep good records of the sources of all money you put in your business bank account. The easiest way to do this is to order a book of duplicate deposit slips from your bank. They cost a little bit more than regular deposit slips, but the cost is well worth it. Here's the trick: List every check you are depositing on the deposit slip that goes to the bank. Keep the carbon copy of the deposit slip in your deposit book. On the copy, write the name(s) of the person(s) who sent you the check, the check number, and any other identifying information that will help you remember where this money came from and what it was for. Be sure to note any deposits that are not "business income", such as a capital contribution from your personal account. At the end of the year you will have a bound record of all deposits into your account.
Your Homework for this Week
· Open a business checking account if you don't already have one. Stop using your personal account for business. Label your business debit card.
· Order a duplicate deposit slip book for your business checking account.
· Open a business credit card account, or designate one of your existing credit cards to be used exclusively for business purchases. Label your business credit card.
· Create an expense category list. Label your expense receipts with the correct category before you file them. File them!
You'll thank me in April.
posted on: 9/20/2009 11:30:00 AM by Katherine Trezise
category: Finances
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Minimizing Financial Clutter
by Katherine Trezise
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About Katherine:
Katherine Trezise is president of Absolutely Organized, based in Baltimore, MD. She is president-elect of the National Study Group on Chronic Disorganization. Katherine holds a masters degree in business administration, is a Certified Professional Organizer® and a Certified Professional Organizer in Chronic Disorganization®. Absolutely Organized specializes in helping people organize their homes, paperwork and financial records to make room in their lives for the things, people and activities that are most important to them.
Katherine's Website:
www.absolutely-organized.com
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