5 Problems Businesses Have With Receipt Management
If your company has a problem with receipt management, then your company is in trouble. Here are 5 receipt management problems you should avoid.
Receipt Management Problems Snowball Quickly
Managing your business’s finances is critical to succeeding as a business. Bad financial management is one of the most common causes of business failure, and it kills many businesses before they even reach their 5 year mark. One problem businesses struggle with is keeping their finances straight, especially when it comes to records of expenses. Receipt management is a major part of that process, but many people do not have good receipt management practices. Dragon Financial, a bookkeeping firm in Portland Oregon, tells us that these are the 5 most common mistakes people make.
Mistakes Businesses Make with Receipt Management
1. Not Saving All Receipts
This is, by far, the most common mistake small businesses make early on. While you might not get in trouble for not having a receipt on hand when you file your taxes, they can become problems if you get audited. Furthermore, not keeping receipts will end up costing you tax deductions you could have made that you didn’t even know about. You should keep every receipt for every business expense you make, no matter how small.
2. Not Making Copies
Having back-ups is always a good idea. Even if you don’t throw away your receipts, it’s still possible for them to get lost, misplaced, or damaged. You should therefore make copies of every receipt as well. Scan your receipts as soon as you can and never turn down an offer of having a receipt e-mailed to you in addition to getting paper receipts. When you scan them, make redundant back-ups onto a portable hard drive separate from your main machine in case its hard drive fails. Having several back-ups like this ensures that you have the receipts when you need them.
3. Relying On Apps
While having digital back-ups is a good idea, the important part is that they are back-ups. Having your receipts emailed to you is good, but computer glitches and hard drive crashes can make them impossible to retrieve. Furthermore, you never know how long certain apps will last. In today’s market, where nearly every app is sold as a service, not a purchase, a company going belly-up means that your app and all its data is lost. If that app was storing your receipts? Poof! Gone.
As the saying goes, never put all your eggs in one basket. Have a physical copy as well as a digital copy of your receipts.
4. Not Storing Receipts Properly
Receipts are made of paper and paper is easily damaged. If it gets wet, it can rip, or the ink could wash out. Receipts also use thermal paper, so if they get too hot (such as getting left in the sun or in a hot car), the paper will blacken and can make the receipt unreadable. Make sure you have a cool, dry area to store all receipts in and always put them into storage as soon as possible. The IRS doesn’t accept “This receipt proves my claim, I swear” if they can’t read it.
5. Not Organizing Receipts
Photo by Karolina Grabowska
It’s no good keeping all your receipts if you can’t find them. Many people throw all their receipts into a small box and call it good. This might be fine for your personal finances – or at least far less of a problem – but when every business expense and tax claim needs to be properly documented and proven to avoid an audit, that won’t do at all. You need to have an organizational system in place to make your receipts easier to locate. The best system is to organize them chronologically, then subcategorize them into the types of expenses. Writing notes on your receipts will also help you tell what they’re for. You probably know what that scanner you bought was for, but a business lunch is harder to tell by the receipt alone what it was for. Anything that makes it easier to tell at a glance what the receipt was is a good idea.
Bonus Tip: Never Mix Business and Personal Spending
It’s very easy to mix business and personal spending just out of carelessness. You should never do this. If you use personal money to cover business expenses, you then have an extra step to prove that money was spent for your business, which can cost you tax deductible claims, or get you audited. If you use business money for personal reasons, that not only creates confusion on your records, it opens you up to potential fraud charges. The end results are bad for everyone.
The best way to keep these separated is to have a separate bank account and credit card for business expenses and make sure you never use it for anything personal. This way, you will always know that the expenses on that account are for business.
Receipt Management Is Vital
Taxes are unavoidable. If you run a business, getting your taxes done properly can be the difference between keeping in the green, or drowning in red ink. Keeping and organizing your receipts is a fundamental part of verifying your expenses in your tax records. If you follow these tips, you should find it much easier to manage your receipts and keep your business going.
Cover Photo by PicJumbo