As a small business or franchise owner, it is essential to keep accurate financial records. One important way of doing this is by properly organizing receipts for accounting and tax purposes. Receipts provide details about the money you spend – including tracking expenses for taxes or audits – so organizing them properly can save time down the road when filing taxes or preparing financial statements.
Let’s dive into some tips to help you organize small business receipts more effectively.
Receipt Requirements by the IRS: What You Need to Know
Are you a small business owner who thinks keeping business receipts is enough for tax deductions? Think again. It’s not enough if you fail to document the business purpose of your expense.
The IRS mandates you to show how much the expense was, when and where it occurred, and most importantly, the business purpose behind it. Simply relying on bank and credit card statements won’t cut it. You need to produce actual documentation that meets the IRS’s strict requirements for tax deductions.
Don’t risk losing out on potential deductions because of a common misinterpretation. Record and organize everything to ensure you stay on the right track.
6 Tips to Efficiently Organize Receipts for Small Business
1 | Hold onto all your receipts
It’s essential to keep all your receipts, no matter how small the amount. Even if you don’t think a receipt is important, keep it just in case.
Pro Tip! It’s not just about keeping track of expenses but also about having proof of purchase, which is crucial for filing taxes, audits, and insurance claims.
2 | Establish a filing system
It’s essential to establish a filing system for your receipts, whether digital or physical. You can create folders for different categories or months, depending on what works best for you.
Pro Tip! Decide whether you want to keep your receipts in physical or digital form. Digital receipts can be easier to manage, store and organize, but some physical receipts may need to be kept for tax purposes.
3 | Categorize your small business receipts
Arrange your receipts by categories, such as office supplies, travel expenses, or meals and entertainment. You may also choose to categorize them by month, client, or project. This can make it easier to find specific receipts when needed.
Pro Tip! Accurate categorization can help you analyze your spending patterns and identify areas where you can cut costs. When categorizing receipts, make sure you assign them to the correct expense account, which should match the category you established in your filing system.
4 | Method of payment
Sort your receipts by a payment method, such as credit card, cash, or check. This can help you track your expenses and make it easier to reconcile your accounts.
Pro Tip! You can create separate folders for credit card, cash, and check receipts. Alternatively, you can use accounting software to sort your receipts by payment method.
5 | Organize frequently
Decide how often you want to organize receipts for your small business, whether it’s daily, weekly, or monthly. The more often you organize your receipts. The easier it will be to manage them.
Pro Tip! It’s essential to be consistent with your chosen frequency to stay caught up.
6 | Review and reconcile regularly
Regularly review and reconcile your receipts with your accounting software, bank, and credit card statements. This can help you identify any discrepancies or errors, keep your financial records up-to-date, and help you avoid surprises during tax season.
Pro Tip! Your financial senseis at Ceterus are here to help you with this!
Organizing receipts is a critical component of managing your finances, and it can help you track your expenses, prepare for tax season, and identify areas where you can save money. However, organizing receipts can be time-consuming and overwhelming, especially for multi-location owners.
One solution is to leverage bill payment systems, which can simplify the process of organizing receipts and optimizing cash flow. Using these systems allows you to easily access records and schedule payments, saving you time and effort. Additionally, for multi-location franchise owners, having a system in place for approving and scheduling payments can help streamline operations and ensure consistency across businesses.
At Ceterus, we offer tech-enabled bookkeeping and tax preparation services that can help small business owners and franchisees manage their finances more effectively. Stop stressing over managing your finances and start focusing on your business. Talk to an expert at Ceterus today.