Business and Personal Finance: Get (and Stay) Organized

Setting Up a System – Get (and Stay) Organized

By now you have probably realized that accounting involves dozens of forms, hundreds of other pieces of paper, and thousands upon thousands of numbers. Keeping track of all of that information can be tricky. Having a system in place that tells you how to fill out every form, what you need from every piece of paper, and where each of those numbers goes makes the whole thing easily manageable. The hard part is putting the system in place.

It sounds obvious, but the first things you need to keep your accounting data organized are a file cabinet and some clearly labeled file folders. You should keep one set of files for your vendors, another for general expenses, and a third for customers. In addition, you need to set up a file for each asset and liability that shows up in your books. Finally, you also need to maintain files for your tax returns. Believe it or not, just having a place to put each piece of paper (and there will be a lot of them) makes your job much easier.

That physical organization is just one piece of the puzzle, though. You also need to come up with procedures for your accounting tasks. Having a single standard way of doing things will streamline your tasks and make it much easier when you turn over the job to someone else. Daily transactions can pile up quickly if you don’t enter them in the journals automatically as they occur. Your accounts won’t tell you anything if you haven’t posted to them recently. Finally, you can’t produce even rough financial statements if your general ledger isn’t up to date. Developing a routine is pretty much the only way to get a handle on this considerable work; without one, the book- keeping can get away from you before you know it.

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Easy Retrieval

One of the most important features of your setup is how easy it is to retrieve documents when you need them—and you will need them. Having the most organized file cabinet on the planet won’t help you if you don’t file your paperwork on a pretty regular basis. Being in business generates a lot of paper, and you will have times when you need to find an invoice or a receipt right now. Sometimes it’s only frustrating to have to search around for a document, but at other times it can cost your company money.

Suppose your company is selected for audit by the IRS (a situation that comes up a lot for small businesses but is not nearly as scary as you might imagine). The IRS asks to see your receipts for travel, meals, and entertainment for the year. If you can’t find all the backup documentation, part of your expense deduction could be disallowed. If the IRS discounts some of your expenses, that increases your taxable income, which means a new tax bill, usually accompanied by penalties and interest.


There are times when missing a receipt or two won’t be a problem with the IRS. As long as you have most of your receipts, and they’re all pretty similar, you probably won’t lose the deduction for a couple that have been misplaced.

Here’s another scenario. A customer sends you a purchase order asking for fifty yellow sweaters at $20 apiece. You pack and ship the order and send an invoice for $1,000. The customer calls back, angry, and claims he ordered orange sweaters for $10 each. He says he’ll keep the order if you knock off $500; otherwise he’s sending the whole thing back. If you can’t find his original purchase order, you have no way of proving that you filled the order correctly. If you let him keep the order, you’ll be out $500; if you don’t let him keep it, you will lose this sale, probably lose the customer, and pay for shipping costs twice.

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To avoid situations like these, it’s crucial to keep your files organized and up-to-date. It should be easy for anyone to find the paperwork you need (in case you aren’t there to pull it). In addition to potentially saving your company some hard-earned money, being organized will help save your most precious resource: your time.

Staying on Top of Recordkeeping

To keep your records properly, you have to follow the standard record- keeping order of tasks. Going out of order can mess up your books and will require a lot of correcting work at the end of the accounting period. Since one of the goals of your system is efficiency (which includes not having to do the same thing twice), following the right task sequence is critical. For example, you have to write up journal entries before you post to the general ledger, and you must prepare a trial balance that balances before you can move on to the next accounting period.

Until your accounting chores become automatic, it helps to keep a calendar of which tasks need to be done at which times. You usually back into this chore calendar: first you figure out your deadlines for government filings (such as sales tax or income tax), then work backward to figure out which tasks need to be done by then. For example, if you have to file a sales tax return on March 31, you need to verify your total taxable sales before that.

The other factor that will come into play is your transaction volume. A high transaction volume requires more daily work just to stay current; companies with low transaction volume (fewer than twenty transactions per week) can implement a weekly schedule. It’s very easy to let the bookkeeping lapse, especially when you are doing it yourself. This is where many small-business owners get in trouble, but that trouble is easy to avoid. There are some bookkeeping tasks that you deal with every single day: You close sales, write checks, make bank depos- its. What is neglected is journal recordings and postings, which may give you some extra time right now but will leave you with a real time crunch at the end of the accounting period.

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The key is to do whatever you have to in order to keep up with the bookkeeping. When you don’t, you face a potential loss of money and a definite loss of time. It’s much harder to get things straight when an error occurred months ago; it’s even tough to remember the details of transactions that happened as recently as last week. However, when you make it a practice of at least recording journal entries every day or two, you’ll be able to re-create transactions much more easily. On top of that, your business does have deadlines to comply with, mostly tax- related. If your bookkeeping isn’t up to date, you risk late filing (and that sets off interest and penalties) or filing with incorrect numbers (which means you’ll have to file an amended return, which may be subject to interest and penalties).