Not keeping track of expenses is one of the business management mistakes LNCs make. You need to do this whether you or someone else is paying the bills.
Systems for keeping track of expenses
I became aware of the importance of keeping track of expenses early in my company’s history. My accountant and I worked out a system so that there are various codes for income and expenses. For example, if I purchase supplies, I have a code that would cover that purchase. Assign word or numerical codes to your income and expenses.
You’ll find it helpful for keeping track of expenses to have a code like 8000 or “ask” for “Ask my accountant” for when you don’t really know how to categorize that expense. This is a standard one in Quick Books that comes when you set up a company.
It’s a good catchall that your accountant can find later at the end of month, end of the quarter or end of the year to see what questions he has. Anything that’s unclear is good to put aside like that rather than guessing and saying, “Oh I think its office supply.” Once you’ve got it in a category like office supply you will never realize that you were going to go back and look at it again. It’s already hidden in there.
By coding, just on a practical level, what I’m referring to is when my credit card statement comes every month. I sit down with a statement and a printed list of all of my income and expense codes. I then write a little number next to that charge on my credit card so that number can then be transferred into the accounting system. That then goes into building those reports, for example, a Profit and Loss report.
You’d use the same coding system when paying bills. This makes it easy for keeping track of expenses, and to look for trends or patterns. Are you spending more on marketing this year than last year? What do your website costs run?
The benefit is getting it correctly into your accounting system, but also you’re reviewing the credit card statement. You’re looking, seeing and verifying that yes, that’s what I spent and there’s no unknown charges in there or something came in that you don’t recognize. It just gives you another sense of what’s happening with your money in the business.
Some business owners don’t want to look at a bank statement and don’t want to see the credit cards. They don’t even open it and say, “Here, pay this bill. I don’t want to look at it.” It’s got two purposes there. You’re getting your eyes on it and you’re coding it for someone else or for you to put it in later.
A horror story about not keeping track of expenses
I know a woman who owned a legal nurse consulting business who had an employee who handled her money. One day the employee was out sick. The business owner, who had turned everything over to the employee, picked up the credit card statement. That employee was always paying the bill; the owner did not see the statement. The owner discovered that the employee had purchased a $3,000 computer with the company credit card for her own personal use. The owner would never have seen that charge because she trusted her so completely and there it was.
Unfortunately fraud occurs a lot. What happens is a bookkeeper will gain your trust or they might start with a small expense like that and it might be something that you would not notice at all. Maybe she went to the office supply store and bought supplies for herself and you would not have realized of course that they weren’t for your business.
Dishonest employees sneak in a few little ones and then they start getting more aggressive, and braver. It’s not caught until that person goes on vacation, disappears or is fired and then their dishonesty is found. This person was paying their own electric bills with my money or something like that, so the more you can keep your eyes on it… You want to be able to delegate, but you also want to have oversight to make sure everything is accurate.
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