As a small business owner, every purchase you make matters! Maintaining a pulse on financial transactions and spending is important – not just to save money, but to make sure you’re staying in compliance and don’t get stressed when tax time rolls around. One major aspect of keeping accurate records is the meticulous management of receipts. While it may feel mundane, getting into the nitty-gritty of what receipts small businesses need to record is important for your business’s financial health. Let’s look at what receipts your business needs to record and how to stay organized.
The Importance of Receipts
When thinking about receipts, many of us picture an 80’s businessman with a stack of paper, crunching the numbers by hand. That’s not what we’re doing today!
Receipts (which can be paper receipts, credit card bills, or digital invoices) serve as tangible evidence of financial transactions, acting as a lifeline for small businesses when it comes to accounting, taxes, and budgeting. They provide crucial details such as the date of purchase, amount spent, items bought, and payment method. Whether it’s for tax deductions, refund claims, or auditing purposes, keep those records safe!
What Receipts to Keep
You’re probably wondering how many receipts do you need to keep – and for how long? That could be a lot of paper to keep track of!
In a worst-case scenario, the IRS can audit your business expenses from six years ago, so holding onto records for that time is generally advised. Here’s a breakdown of what receipts you should be keeping track of in case of an audit:
Purchase Receipts: Any receipts related to business expenses must be retained. This includes receipts for inventory purchases, office supplies, equipment, and services availed, such as utilities or maintenance.
Sales Receipts: In addition to keeping records of expenses, small businesses must also maintain receipts of sales transactions. These include cash register receipts, invoices issued to customers, and online sales confirmations.
Travel Expenses: For businesses that involve travel, it’s essential to keep receipts for expenses incurred during trips, including transportation, accommodation, meals, and any other related costs.
Receipts for Business Assets: Receipts for significant business assets, such as machinery, vehicles, or real estate, should be preserved for accounting and tax purposes.
Contractual Agreements: Receipts or invoices related to contractual agreements, such as those for consulting services, rent, or subcontractor payments, need to be retained for legal and financial documentation.
Tips For Staying Organized
Six years is a lot of record-keeping. Instead of throwing your documents in a box and hoping for the best, here are some great ways to stay organized.
Digitize Receipts: Embrace technology! Digitize receipts using dedicated apps or accounting software. This not only saves physical space but also streamlines the process of organizing and retrieving receipts when needed. With QuickBooks, it’s super easy to create entries that correspond to transactions you make, which helps you stay on top of bookkeeping.
Categorize Expenses: Create a systematic categorization system for receipts based on expense types (e.g., office supplies, utilities, travel). This makes it easier to track spending patterns and facilitates budget planning.
Set a Regular Schedule: Designate specific times, whether weekly or monthly, to review and organize receipts. Consistency is key to preventing a backlog of receipts from piling up and becoming overwhelming.
Use Dedicated Folders or Cloud Storage: Whether it’s physical folders or cloud-based storage solutions, allocate designated spaces for storing receipts. Ensure proper labeling and organization to facilitate quick access.
Leverage Email Receipts: Many businesses receive receipts via email for online purchases or electronic transactions. Set up filters or folders in your email client to automatically categorize and archive these receipts for easy retrieval.
Back-Up Regularly: Don’t rely solely on a single storage method. Back up your digital receipts regularly to prevent data loss in case of technical glitches or system failures.
Consult with Professionals: If navigating receipt management feels daunting, don’t hesitate to seek advice from accounting professionals or financial advisors. Professionals (like our team here at KC Virtual Bookkeeping) can provide valuable insights and assist in optimizing your financial management practices.
If you struggle to stay organized, you might also consider scheduling routine audits or your receipt management or hiring someone to perform audits for you. Periodically checking your receipt management system can identify any discrepancies or areas for improvement. This proactive approach helps maintain accuracy and compliance with regulatory requirements. If using expense-tracking software, you’ll more easily capture and categorize purchases, making your audits much faster.
What’s Next?
Effective receipt management is a critical component of small business financial success. Whether you purchase software, hire a pro, or do it yourself, it’s time to embrace those receipts. Your bottom line will thank you for it!
