How to Design & Automate Your Business Receipt Process

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elementscpa-design-automate-receipt-workflowAs every business navigates forward into its future, it generates a stream of documents flowing backward out of its wake. Things like credit card receipts, online purchase confirmations, annual vendor contract renewals, monthly bank statements, and more. These can quickly grow into an avalanche that buries an entrepreneur and their finances. But good financial design that leverages 21st century technology will turn that avalanche into a fuel that powers nimble decision-making and financial confidence.


Why does Receipt Workflow Design Matter?

There’s a number of reasons a well-designed receipt system makes a difference, but here are two big ones:

  • One, being able to quickly and easily access your records makes your business that much more effective. How much time gets lost chasing paper? Or goodwill lost by invoices/bills falling through the cracks and being paid late? Or errors because you weren’t able to easily refer to the right document? Or opportunities lost for lack of access to information? Or just plain lack of insight into your finances because you’re not able to drill down when you need to? Having a good financial document system solves all that by making you nimble.
  • And two, you might be looking at a higher tax bill without it. There’s little worse than having to pay tax (plus accumulated interest and penalties) on a deduction that got denied because you didn’t have the receipt to back it up. (*Public Service Announcement*: credit card and bank statements aren’t sufficient “back up” – the IRS wants to see the actual purchase receipt.)


What Receipts Should I Be Keeping?

Which brings us to the question we get regularly: “What records should I keep?”

From a business operations perspective, we recommend keeping records of all the financial documents you’re generating as you go – they’re good for keeping the business running smoothly.

From an official IRS tax perspective, here’s a breakdown of what you should know:

  • In Publication 583, the IRS explains “Except in a few cases, the law does not require any specific kind of records. You can chose any recordkeeping system suited to your business that clearly shows your income and expense.”
  • With that in mind, the IRS makes it clear that the burden of proof falls to the taxpayer to support what they put on their tax return. As they describe it:

“Generally, taxpayers meet their burden of proof by having the information and receipts (where needed) for the expenses. You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. Additional evidence is required for travel, entertainment, gifts, and auto expenses.”

  • The additional evidence required for those special cases is spelled out in IRS Publication 463, and neatly summarized there in a table. The gist is that the IRS wants more information (like who was involved, and what the business purpose was) for things like travel, entertainment, gifts, and transportation, so they can justify that personal expenses aren’t trying to masquerade as business expenses.
  • Some exceptions-to-the-exceptions by the way (this is tax law after all) ;), are when you claim per diem on business travel, or the if special expense is under $75.


How Long Do I Have to Hold onto Receipts?

So now that you have your receipts, do you have to hold onto them forever? The short answer is “no”, and here’s pointers for when it’s safe to start getting rid of support documents:

  • Back in Publication 583 again, the IRS says “You must keep records as long they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records…until the period of limitations for the return runs out.” For most returns, that’s 3 years. If you failed to report income that’s more than 25% of the total, it’s 6 years. And if you’re filing fraudulent returns, it’s unlimited (hope no one out there is in this boat).
  • You should also consider whether your industry or other regulatory agencies require you to hold onto certain documents longer.
  • As a general rule of thumb, we recommend 5 to 7 years for most support documents, and just keeping copies of your tax returns after that. Of course, be sure support documents that have a longer life are kept separate so they don’t get accidentally purged with the rest (like real estate purchase agreements, lease arrangements, personnel files, etc.).


What’s the Best Receipt Workflow Design for My Business?

The size and complexity of your business will drive which solution is the best for you, but the bottom line is that with today’s technology, there’s absolutely no reason it should be hard:

  • For simpler enterprises, using a smartphone app like Scannable (iOS) or Scanbot (iOS/Android) combined with a Dropbox account can easily do the trick. We recommend using a standard file naming convention with the date and vendor, like “2017-11-28 Staples.pdf” – this helps you easily locate whatever you’re looking up, and also let’s you easily purge documents in a date range when it’s time.
  • Once you digitize your receipt (and after you have an unquestionable backup solution in place) you can get rid of the original. If you haven’t already experienced the freedom of being paperless, we can’t recommend it enough. And rest assured: digital copies are considered sufficient support evidence for the IRS (we’ve used them in audits).
  • But wait, there’s more!: Since we’re leveraging 21st century technology, let’s also point out you can: (a) have many of your monthly bills and bank/credit statements automatically retrieved and posted to Xero for you, (b) easily forward e-mail purchase confirmations and have them auto-converted into a receipt and auto-filed in your digital file cabinet, (c) setup mobile bill payment solutions to route bills to required approvers, and then get authorized for e-payment using your smartphone, (d) plus more.

Bottom line: there’s no reason receipts have to be a pain anymore. Your digital wake can move as fast as you do, and your financial system becomes an asset, and even a competitive advantage.


Freeing Up Your Energy

At the end of the day, your business isn’t about record-keeping, it’s about future-making. Step 1 is eliminating the drag your current financial system is having on your business. Then Step 2 is pushing to the next level by actually making it an accelerator. When you’ve got the right design, it’ll simultaneously give you better insight and free up your energies to make your entrepreneurial vision a reality.