Tag Archives: best practice

Shoes Boxes Are For Shoes, Not Receipts

My mouth dropped open as I took the bin full of page protectors, grocery bags, and some other unidentifiable container all overflowing with receipts.

It was early in my career and I couldn’t believe this was for real.

Was I being punked? Was that an actual shoe box?

Yes it was, and no I wasn’t.

I have since learned it’s actually really easy to squirrel away receipts and end up with a pile of them to deal with all at once, or worse, not keep them at all.

Confession time. I’ve been that small business owner.

Sorting through receipts is time consuming and tedious, and not how you want to spend your time. Nor is it how you want your bookkeeper or accountant spending their time, because either way, you’re paying for it.

That goes double if there’s a fast approaching deadline looming over you.

Receipts are SO inconvenient. We always have to do something with them at the most inopportune time. Like at the gas station for example, you’ve just finished pumping your gas, you grab your receipt and get in the car to drive away.

Now it’s in your hand and you have to do something with it, but you only have about 2 seconds because the person behind you is impatient, so it goes in your pocket/wallet/purse/glovebox/anywhere you can stuff it… and there it stays, for months.

Believe it or not, stuffing our receipts into the nearest receptacle isn’t the issue. It’s not having pre-determined receptacle to collect them, and then not sorting them regularly, that’s the issue.

That’s how we end up with a pile of them to deal with, and potentially missing ones when we realize it’s tax time and those little bits of paper are suddenly SO IMPORTANT.

So how do we solve this problem?

My first step (now) when I get a receipt is to take a picture of it. It takes two seconds and now that little piece of paper can go in the recycling.

Pro tip: this only works if you get a receipt (obviously) so remember to ask for a receipt for everything.

What you bought, the date and the amount need to be clearly stated on the receipt. So if you go out for lunch, the debt machine receipt isn’t enough, you need the itemized one too.

That’s step one – take a picture.

Step two is to create folders in my cloud (or is it on my cloud?) for the year and then subfolders for the category my receipts belong in. For the gas receipt I would have a folder in 2019 called Vehicle Expenses.

I give them a naming convention that makes sense and tells me what I need to know. Because I use a bookkeeping software that pulls my bank transactions automatically, I don’t need to enter the receipt manually. I name the file based on where I was, the way I paid for it and the date if my phone/computer isn’t very good at date stamps. The gas receipt might be Esso-Visa 2405-March 14.

If it was a meal with a meeting, I’d probably add the name of the person I met with as well. I could then match it up with my calendar to prove I did in fact have a business meeting and not just lunch with my friend.

That’s honestly all you need. No more paper receipts! Win!

Pro tip: if you hate paper receipts as much as I do, it’s kinda therapeutic to tear them to shreds before they get recycled.

If you have a bookkeeper that you give your receipts to, you can give them access to your cloud folder, and they’ll have everything they need.
No more collecting boxes of receipts to hand over! Win-win!

If you know you’re not very good at taking pictures when you get receipts, make sure you put them in the same place every time, and block out 30 minutes in your calendar once a week to take pictures.

What about electronic receipts, like the ones you get emailed to you? Save those to your cloud folders too. Everything can and should go in there, so if the Canada Revenue Agency ever asked to see your receipts, you’d have everything ready to upload to them – without any panic or stress.

All. The. Wins.


Why Hiring a Bookkeeper Might be the Wrong Choice for Your Business

When I tell a small business owner I believe they should do their own bookkeeping, I almost always get the same look. It’s a mix of terror and wide eyeballs that say “you’re f***in’ with me right?”

I’m serious though. Doing your own bookkeeping gets you elbow deep into the details of your financial information. You look at every little thing you spent money on, which forces you to think about your expenses in a head space that’s disconnected from the usual emotional high of buying something.

You have a chance to think about why you purchased it in the first place and, with objective hindsight, examine if you maybe should’ve left it on the store shelf. This assumes you’re bookkeeping in a calm and collected head-space. I understand this may not be the case right now. It may be closer to a fear and frustration tornado that’s raining overwhelm (I’ll come back to this).

As you review your expenditures you can catch errors before they become an issue. If you’re looking at your phone bills every month, and one month it goes up by $25, you’ll have a chance to call the phone company in that month to find out what happened. If it was all on auto-billing, it may have gone unnoticed and unquestioned.

Get ready to dig into your numbers! #elbowdeep

Let’s get ready to dig in to your business numbers. #elbowdeep

Doing your own bookkeeping also gives you an expectation for what your income statement should look like. If you know you’ve made the choice to put apps and other software in to Office Expenses, you can look at your income statement and know exactly what’s in the Office Expenses bucket (or line or account or category – whatever you want to call it).

If you outsource this job maybe the bookkeeper decides those items should go into Software Expenses, and only physical office expenses should go into Office Expenses. Now you’re looking at your income statement and you’re not really sure what makes up those amounts.

Your income statement is useless if you’re not sure what makes up the numbers.

How can you lower run-away utility bills if you’re not sure what’s classified as Utilities Expenses? Maybe you turn your heat off and shiver through the winter, trying to lower that expense, only to find out your phone bill was in there too, and the biggest cost was you kept going over your data limit – no amount of shivering will fix that.

Back to the Fear and Frustration Tornado

I understand the idea of doing your own bookkeeping is scary and not something you want to do, and I’m not suggesting you go it alone.

It’s important to have someone walk you through the basics of bookkeeping and receipt management, so you can setup a specific process that’s tailored to you and your business.

Think of it like hiring a bookkeeper as a coach instead of doing it for you. You’ll want to have a few lessons in the beginning to make sure you get started on the right foot (or left, if you’re left footed).

This person should be someone who creates a safe space for you to make mistakes and be honest about how the process is going. The more you can share with this person, the faster you’ll learn and grow.

As you gain confidence in your ability to sort, categorize and reconcile transactions, a lot of the negative emotions will start to ease.

Even the best dogs can get themselves into a mess. #gooddog

We tend to fear bookkeeping because we don’t know where to start, it’s difficult to understand whatever we can find on the internet (or know if we can trust it), and we worry that any mistake will have the Canada Revenue Agency (CRA) banging on our door.

The first two can be helped with a good bookkeeping coach.

The third? The CRA has a bad reputation for being mean and unyielding, and I don’t believe that’s totally accurate. I’m not here to advocate for them, but what I will say is this. You can always call and speak to an agent, who will explain the rules and how to correct whatever happened – you don’t need to be perfect.

No matter how big the mess feels, it can always be cleaned-up.

When’s the Right Time to Hire a Bookkeeper?

I don’t believe you should do your own bookkeeping forever. In fact you probably shouldn’t do it for very long. So how do you know when to hand it off?

1) Start by keeping track of the hours you’re spending on your bookkeeping. In the beginning it will be higher, but once you get the hang of it and it becomes part of your regular routine, you’ll have a pretty good idea of what it takes for you to do it consistently.

When the amount you would be making by doing something else exceeds the amount you would pay a bookkeeper, it might be time to hand it off.

2) If your bookkeeping starts to become more complicated, and you’re asking more and more questions, it’s probably time to hand it off.

3) When you have the available resources to comfortably pay a bookkeeper, it’s definitely time to hand it off.

If you’re still not sure, talk to your bookkeeping coach. They’ll have a good understanding of your specific situation and will be able to advise you based on your needs.

When you do hire a bookkeeper, you’ll get far more out of the relationship because you have experience doing your own books. You’ll have an expectation for your income statement and will be able to ask your bookkeeper why your numbers are changing.

When your numbers are changing, it gives you questions to ask about operations, and that’s where the real value lies. What are the business reasons for the change?

All your financial reporting, be it monthly statements or year-end analysis, can tell you everything you need to know about the health and status of your business, but they are written in a different language. The language spoken by accountants and bookkeepers.

Immersing yourself into the process of making those reports in the early stages will help you learn the language and understand the story behind the numbers.


When Budgets Break Bad

Recently I was doing a budget for myself and my partner. We each own a small business so I end up doing three budgets. One for our joint expenses, and one each for our businesses.

This gets tricky when we start talking about my partner’s company because he has very unpredictable revenue streams. We try our best, but inevitably we’re guessing for parts of it.

Later in the year when we go to compare our budgets to what actually happened, it’s never “right”. We never end up with numbers that are exactly what we budgeted. Unfortunately this will always be the case, unless we can find an all-seeing crystal ball on ebay or something.

Weird stuff is inevitable

Do you ever look at your budget part way through the year and think, “well this is useless now, I’m not even close to this” or maybe “hmmm well, when I created this budget I didn’t know that was going to happen, soooooo I’m just going to change the budget.”

Stop. Don’t do it. Relax.

Don’t trash or change your budget. It defeats the purpose of the budget in the first place.

Life is weird and unpredictable, which is what makes it interesting. It’s also why our budgets never match exactly what happens in our businesses. The good news is, that’s okay! Yeah, that’s right, it’s okay if your budget doesn’t match your actual numbers. In fact, there’s no way you’re going to get a 100% match.

The point of the budget is to think through our intention for the year, and try to have a guideline for making financial decisions throughout the year. It’s a measuring stick so we know if we’re veering off course. It’s better to course-correct early before it becomes an issue.

There’s another kind of budget?

My partner is not an accountant, he’s a magician. Yup, you read that right, a magician, as in top hats and card tricks (insert joke about creating money from nothing or making me disappear or magically finishing all the housework). We think about money very differently and he really doesn’t love the budgeting process. He enjoys the end result of having the budget (“enjoys” might be over selling it), but the process isn’t his favourite.

It’s tough to keep in mind that this is not a budget of cash moving in and out of the company, it’s a budget for when income and expenses will be incurred. That means when he invoices customers, not when he gets paid, and when he receives bills, not when he pays them.

Wait, what? Why wouldn’t a budget tell me when my money is coming and going from the bank account?

I don’t mean to alarm you, but it’s important you know, there’s more than one kind of budget. I’ll make this clear in a moment.

If you’re not sure what a traditional budget looks like, or how to create a simple one, read this “How to Create a Simple Budget” and then come back.

Welcome back

A traditional budget shows you when sales will be generated and when you expect to incur expenses, not necessarily when you’ll receive or pay out cash for those sales/expenses.

Think about the last sale you made, did you receive the cash immediately? Maybe, but it probably wasn’t until the next month.

That means you’ll have a sale in this month, but you won’t receive the cash until next month. That’s a problem when you need to pay for expenses in the current month.

What if you put most of your expenses on your credit card? The expenses shown in this month wouldn’t be paid out of your bank account until next month. You probably can’t pay everything with a credit card though, things like rent and utilities usually need to be paid in cash directly out of your bank account.

So you can see how there’s a lot of situations where your cash movement doesn’t always line up with your income statement. Some expenses get paid this month, some next month, some cash is received from sales generated last month and some from this month. This is why it feels like sometimes your budget isn’t in sync with your business.

A cash budget

The solution is to create a cash budget.
I start by creating the budget I outlined in the other article. I create a copy so I can change things without messing with the original (it’s still useful).

In my business, I offer a monthly subscription service, so I know some of my revenue will be paid on the first of the month, I put that in to each month.
That’s cash I know I’ll receive every month.

Next I look at my expenses. Which items need to be paid in cash during the month? Rent, utilities, my coach’s fee – they all stay where they are because when I’m billed is when I have to pay cash for them.

I know many of my business purchases will go on my credit card, so that means on my cash budget, I’m actually paying for them in the following month when I pay the bill.

Go through each line of your budget moving the amounts around to when you know the cash will be coming in or going out of your bank account.

This is a simple cash budget and it will be far more useful in planning payments to suppliers and receipts from customers than the first budget was. It will help to ensure you have cash in the bank when you need it.

Remember, you’re going to have discrepancies between your budget and your actual cash movement, and that’s okay! If you have a big difference, make a note as to what happened so you have a reference for when you go to do your budget next year.

Like with anything it gets easier as you do it, so keep at it. Check back regularly and make sure you’re staying true to your intentions for the year, or you make a deliberate and thoughtful change.

If you’d like a hand with your budget I’d be happy to help you. You can fill out a contact form: https://www.kirkcpa.ca/contact

Happy budgeting!