Bookkeeping is not one of the most exciting tasks. When I started my own business, a lot of people gave me the advice to just collect the bills and have everything done by an accountant. It sounded really tempting – I would not have to bother with boring stuff and could focus on the product.
However, for two reasons I decided not to do it. The first and obvious one was capital: I have a backround in business and finance, why should I waste money by outsourcing it to someone else? Secondly, I want to be in control of my business. This means knowing my numbers. I want to know how much I spend on what. If I just send the bills to somebody else it might be really tough to understand the numbers: Where did they book all the amounts? How do the numbers add up? Is anything missing? I knew that outsourcing would mean checking the numbers anyways. Therefore, I decided to do it myself first before handing it to a professional accountant/auditor.
When I started, I made the mistake of collecting all my bills in a shoe box. After more than six months, the invoices had piled up and I finally stopped procrastinating. I spent over three full days catching up on all the bills, making a spreadsheet and filing the documents. After that experience, I made a promise to myself that I would get more organised.
I have a system of four steps which I repeat every month:
Firstly, I file all the bills in monthly folders on my laptop – which means downloading electronic invoices and scanning paper ones.
Secondly, I keep a hardcopy of all the documents which has the same monthly structure. I am really bad at checking documents on a screen and need to print them. But if you want a more eco-friendly approach, you can stick to the electronic version and only file the invoices you received as hardcopies.
Thirdly, I make a spreadsheet for the expenses with individual tabs for each month. This makes it easier for external accountants/auditors to check your documentation. Every invoice in my folders is documented with the amount, use, date, payment method (ie. direct transfers, cash, credit/debit cards). I give every invoice a consecutive number in the spreadsheet and use that number in my electronic/hardcopy files. The files are then arranged according to the numbers (this makes it easier for you and external accountants/auditors to find the respective documentation). I also try to group the expenses into categories such as IT, Marketing or Product Development. All the monthly tabs then tie up in the first sheet.
Lastly, I go through all my bank balances and credit card summaries and mark the booked expenses. I also save copies of them in my folder structures electronically and as hard copies.
Regarding the income, I use the same method and link the expense and income spreadsheets. I then can send it over to professional accountants/auditors. This preparation makes it easy for them to work with you but also easy for you to communicate successfully with them.
At first sight, this task may seem daunting. It looks like a lot of work. And believe me, if you have invoices piled up for months it really is. However, if you are disciplined and dedicate a (half-)day per month, depending on the amount of expenses, it is a really efficient method. Also, it is no rocket science.
The biggest advantage is that you will know all your numbers really well because you check the invoices, document the amounts in the spreadsheets and cross-check them with your bank/credit card statements. I remember the numbers really well by doing this. If I receive spreadsheets from other people, it takes much longer to remember all the numbers.
And as I mentioned in my article “Cracking the Numbers You Need for Your Business”, you need to not only get your numbers right but also know them. I stay updated with my numbers regularly because otherwise I cannot make the right decisions for my business.
Now you do not have any excuse to procrastinate. Go get it done! Then you can focus on the more exciting stuff! 🙂