How I track my business income and expenses has changed dramatically since I started my online company in 2007. What was once a painful process with uncertain results (I was always losing something) now takes just a few minutes a month. And the result is penny-perfect accounting that even my tax prepare admires.
So how do I do it? I use three simple online accounting tools: Dropbox, Freshbooks, and Outright.
Before I get into how I use those tools, however, let’s talk about the problems small businesses have when it comes to accounting and finance. Before I perfected my current system, I encountered a number of irritating issues:
- Saving Receipts: Between paper receipts and email receipts, trying to keep them all well organized was virtually impossible. I’d end up relying on credit card statements and checking account records to tally up my expenses at tax time. Not only was this a nightmare of an experience, but the lack of a receipt could give me problems with the IRS.
- Tracking Expenses: My expenses typically are either charged to my business credit card or my business PayPal account. At the end of each year I’d spend days going through my statements to make sure I hadn’t missed anything.
- Sending Invoices: While I don’t have a lot of invoices to send each month, the few I do send out were always a pain to generate. And then I couldn’t remember who had paid their invoice and who still owed me money.
- Tracking Profit and Loss: How much have you made this month? This year? If you’re not sure, there’s a problem. I use to struggle with tracking my profitability. Now I can tell you my profit to the penny.
Back to Dropbox, Freshbooks, and Outright. If you’re not familiar with these tools, here’s a quick summary:
- Dropbox: A free service that let’s you store files on the cloud. Great for sharing files with others or to backup information in case your computer crashes.
- Freshbooks: A cloud-based invoicing tool.
- Outright: A cloud-based accounting software.
So how do I use these tools in my business?
The vast majority of my receipts come in the form of email. In the past I’d save the email to an expense folder. That process was a real pain, and all the receipts would be gone if my computer ever crashed.
Today, I convert the email to pdf and save it in a folder called “Receipts 2012″ in Dropbox. To create a pdf, simply “print” your email or attachment to pdf. I give the receipt a descriptive name and select the Dropbox folder as the location. Total time to save a receipt is about 15 seconds.
If you have a lot of paper receipts, I highly recommend the Fujitsu ScanSnap S1500 scanner. This is a thing of beauty. And you’ll use it for far more than receipts. It makes converting all paper to pdf a snap. There’s also a version of the scanner for those that run on a Mac (which is all the cool people).
If you want to take this to the next level, you can create sub-folders by expense category. And at tax time, you can give your accountant access to your Dropbox expense folder if necessary. Imagine not having to lug a ton of paper over to your tax accountant.
Saving receipts is one thing, but keeping track of expenses in an accounting package is another. This is where Outright.com displays its awesomeness. The vast majority of my expenses are charged to a credit card or my PayPal account. Wouldn’t it be great if accounting software could automatically see these expenses and enter them for us? Welcome to Outright.
With Outright, you can link credit card accounts, PayPal accounts and some checking accounts. Whenever an expense hits my credit card or PayPal account, Outright automatically grabs that expense and records it.
For example, this month I haven’t physically entered any expenses into Outright. Yet there are several expenses recorded directly from my credit card or PayPal account:
Total time to track expenses: 0 minutes.
Sending and Tracking Invoices
I once used Quickbooks to generate invoices. Because of the complexity of the software, however, I always found it to be extremely difficult to use. With Freshbooks, I can generate an invoice in literally about 20 seconds. I send all of my invoices by email, so the entire process from start to finish takes less than 30 seconds.
And Freshbooks gives you a dashboard that shows you how much you are owed and who is late in paying their invoice:
The last piece of the puzzle is tracking income. Remember those invoices I send out using Freshbooks? Guess what happens when a client pays me and I record that payment in Freshbooks with the click of a button? That’s right; it is automatically recorded in Outright as income.
But not everything is peaches and cream. Most of my income doesn’t require an invoice. As a result it never goes through Freshbooks. And because of the security features on my business checking account, I can’t link the account to Outright. As a result, I have to manually enter some income directly into Outright. I do that at the end of each month, and it takes about 10 minutes. And that’s the only manual part of my invoicing and accounting process.
Most banks, however, can integrate with Outright. But even with the manual process I go through at the end of each month, the total time for the entire month to track my business finances is about 20 minutes.
Published or updated October 18, 2012.