The Shoebox Method
One of the first things I outsourced is bookkeeping. Many small and even medium-sized businesses use the ‘shoebox’ method of bookkeeping. This means that when they receive receipts and invoices, these are thrown into a box and at the end of the financial year, the receipts and invoices are sent to their accountant to do necessary bookkeeping and to prepare the financial and tax reports.
While this might be a workable solution, the very big downside is that you’ll only have updated accounts once a year. During the other 11 months, you’ll only have a vague idea about the cashflow, assets and profit & loss of your business. The only good indicator would be the amount of money in your bank account. If you only do your accounts once a year, you might not catch instances where a client/customer did not pay you the correct amount.
Cashflow Is King (As Always)
With your accounts in order, and a ‘live’ view of your business’ financial situation, you’ll be better placed to make business decisions to maximize cashflow. And for any business, cashflow is king.
Get your accounts in order: cashflow is king.
A word of caution, this does not mean you should fire your accountant/CPA. You should always seek professional tax advice from a tax professional. I’m definitely not one and I’m certainly not qualified to give accounting advice.
There are 2 basic steps to keeping up-to-date accounts.
I find data-entry contractors on oDesk.com to enter my receipts, expense claims and accounts receivable invoices into my accounting system. I use Xero.com (a cloud-based accounting system) which makes it easy for anybody worldwide to enter the data into the accounting software. Since data-entry is a fairly straightforward task, it usually costs about $3–5/hour which is very affordable.
Of course, as with all data entry, there’s always the chance of human error. One little-known tip that very few people use: I actually hire 2 people to enter the data into Xero. One will input the data as a draft, and the other will approve it. I’ve found that this reduces the error rate significantly.
The other solution is to use a service known as Shoeboxed.com. Simply mail or scan and email your receipts and other documents to Shoeboxed and they will take care of entering the data into their system. With integrations with major accounting systems such as Xero, you’ll be able to keep your accounts up-to-date and accurate.
Reconciliation of your accounts is usually a terrible pain. Using Xero makes it relatively pain free – because for most bank accounts in the US and Australia, Xero is able to access your bank feeds securely and download your bank statement daily. They can also do the same for PayPal if you sell products or services online. Together with the data which is entered into Xero using the methods described previously, time spent doing the monthly reconciliation of accounts can be cut down significantly.
Click on the links below to sign up for the services mentioned in this article:
- oDesk.com (free to sign up, pay per-hour or project for contractors)
- Xero.com (free trial available)
- Shoeboxed (free trial available)
This is exactly how I’ve been doing my accounting for over 2 years, do give it a shot and let me know how it works out for you!
As usual, I’m happy to answer any or all questions. Please leave your comments below.