Bookkeeping

Tracking Reimbursable Expenses

As we continue with our series where we deal with common bookkeeping issues and how to fix them, the topic of today's post can  be completely avoided if all business expenses are kept separate from personal expenses 100% of the time. However,  this is not always possible making reimbursement of personal funds necessary.

 

Let’s first define Reimbursable Out-Of-Pocket Costs. According to investopedia.com these consist of cash payments that an individual or company incurs on behalf of the company which will be refunded sometime in the future. While some of these costs may have personally benefited the employee, companies are willing to repay employees for incurring these expenses, because they come about as a result of performing their job.

 

So, given that definition, let’s think about a time when these types of expenses might occur. Let's say your business employs a sales staff. There will be times those employees meet with potential clients.  A typical reimbursable out-of-pocket cost for the sales representative could be a restaurant bill from courting the potential client or the cost of gas to drive to a sales course in a neighboring city.


It is very important to set clear guidelines for employees to track, record, and submit necessary paperwork to receive the correct amount of reimbursement. Equally important is to create policies defining which types of expenses are reimbursable and which are not. Retaining all receipts and recording thorough explanations of all expenses  helps streamline the process of reconciling those expenses down the road.  

 

  

 

 

Let's Talk Systems

What comes to mind when you hear the word systems? Some people I know thrive on systems. They have a list and “work the list” in order to accomplish what needs to happen for the day. Others cringe when they hear this word. I, for one, have found the days I work with some sort of system go much more smoothly than days that I abandon  systems all together.

We have systems for getting things accomplished at home, work, even for free time. If you are running a business there can be several different areas where systems are important. Many of the the things you do that benefit your business everyday may require little to no thought. However, think about all the things in your business that are time consuming and difficult. You might procrastinate on these things simply for a lack of system.

Bookkeeping is an area that needs a defined system and dedicated time. If you set up a way to file receipts, maintain accurate records and view important reports on a regular (monthly, quarterly) basis, you will begin to see many benefits within the financial state of your business.

Benefit #1: Your system will save time and money during tax season. This can be a stressful time for many business owners. Your time can either be spent looking up and gather information from the last 12 months of business, or simply send all the information that has been gathered, organized and reported on throughout the year. CPA’s can be very expensive. They are necessary for filing taxes and very helpful for being up to date on and following tax laws. The more time they spend gathering and organizing your information, the more hours they can bill.

Benefit #2: An organized system will provide necessary documentation in the event of an audit. Being audited is very inconvenient for any business owner, but even more so for the owner who is not prepared for it. Having documents, receipts, invoices etc organized could accelerate the auditing process.

Benefit #3: SYSTEMATIZING your bookkeeping will enable you to make decisions on how to MAXIMIZE your business’ potential. If your financial reports are only run for the benefit of banks and accountants, this leaves little benefit for you. By running reports regularly, you can see which direction your business is going and decide if you want to keep going that direction.  You may find that altering your direction will bring more profitability.

So, where to start? First, look at the system you currently have for bookkeeping. If you find it is effective then great, you’ve got a system that works. If, on the other hand, you see a piles of unorganized receipts yet to be filed, or you haven’t reconciled your bank account in 3 months, or maybe 3 years, then it’s time to start setting up your system.

I would suggest starting with one area at a time. Maybe it’s categorizing receipts, or maybe you go back and reconcile one month of your bank account each week until you get caught up. Don’t try to fix everything at once. Good luck.

I am happy to help get you started on your journey to getting your books up to par. Please leave comments below, or contact Michelle@lighthousebookkeeping.info

Check out our website www.lighthousebookkeeping.info for more information.