Today, I am going to share with you a simple system that works. I always come up with systems to suit my clients’ needs. I found out that many of my clients like the shoe box system.
It does not mean that you will save much money on your bookkeeping costs if you outsource it, however, you will have all documents to back your income earned and expenses claimed.
Why it’s important to have systems?
Papers lead to the money. Whether I buy papers and pencils at Staples or offer my services to XYZ company those receipts and invoices are money. At Staples my money is going out and for XYZ company money is coming in. I do not want to have a healthy bottom line because of lack of papers. I want to have a complete set of books that are compliant so I will have peace of mind if I am ever audited.
What can happen if I do not have a compliant set of books? I may end up with a costly bill after an audit or even on extreme cases lose all of my assets. As an example Mr. John, who owned over 40 properties and had no systems for any of the operations of his business, lost it all.
His books were forgotten until CRA sent him a letter requesting him to bring his taxes up to date. Due to poor management and lack of systems Mr. John lost control of his finances. He ended up with non compliant books, uncollected rent, overdue property taxes and overdue loan payments (second and third mortgages), which made it difficult for any professional to work and represent him.
It is an extreme case and I just wanted to illustrate that lack of systems did not warn Mr. John of the potential problems.
Without systems an organization can fail badly. Please, find out my shoe box system that many clients are following successfully.
1) Have a box, a bag, an envelope, or a drawer to keep all paperwork related to your business. Let’s streamline the system of collecting and storing your documents.
2) If you have more than one property, you need systems to collect your tenants’ requests for repairs and maintenance, your contractors’ reports and match to the invoices or suppliers’ receipts. This way those costs will be allocated accordingly. For that to happen I strongly suggest you have an efficient property management system.
3) Have a drawer, this system works for me. I never paid a bill late after coming up with this easy and simple system. Do you want to keep more money in your pocket by avoiding unnecessary costs such as penalties and interest? Then, designate an area to collect all of your mail.
4) Choose a date to go over your mail and pay bills. I book a date with my money every Friday.
5) What to do next? Open the mail and find out when the bills are due and write on the envelope? Today there are many apps that can remind you of your bills that are coming due. Pay all bills due in the next 7 business day. If your cash flow is low use your credit card wisely. If you know the period ends on the 15th, go make your purchases on the 16th. Now you will have about 50 days to pay. It is one alternative to manage your cash flow if you pay your credit card in full. Otherwise, use a line of credit.
6) Once a month send your papers to your Bookkeeper. If you do not have one, go over your box and organize all your papers by category or alphabetically whichever way you prefer.
7) Do the data entry and bank reconciliation. You can find out where your company stands financially. You can detect fraud. It is important to also reconcile your vendors’ statements. Do you reconcile your receipts against the transactions recorded on your statements? Mistakes can happen, fraudulent transactions too. Keep an eye on that.
Why wait for CRA to request your taxes to be filed and possibly be audited? Keep your books compliant and updated. When it comes time to file your taxes you will have the numbers you need to finalize this process at ease. Also, you will know your numbers and make informed decisions based on that. If you find any discrepancies, you can deal with it promptly.
“Reduce risks, pay on time, be efficient and save money and time” Renata Magalhaes