How to Get Your Office Organized: Simple Filing System Suggestions

What is the best recordkeeping system for a small business to get and stay organized ... so you can get rid of those drawers of stashed receipts? Are you looking for a bookkeeping filing system for your business receipts?

Your entire accounting system - from your paper receipts to data entry into journals to preparation of financial statements and your tax return - is an organized system developed to document and summarize accounting and financial information.

This article is going to discuss organized methods for the collection of all the pieces of paper needed for data entry into your manual or computerized journals.

In this article, you will find filing system options, so you can pick the best filing system for your receipts ... to match your own organizational style.

File organization doesn't have to be difficult or complex to work. Do you have a simple filing system that works for you?  

Here are some simple choices and guidelines for your office filing system that should eliminate stress and panic .

Getting Your Filing System Organized - Make It a Habit

Make it a habit to only handle a piece of paper once if possible. So file ALL of it immediately ... when you get it. This is a big step in office organization and taming the paper jungle.

Make it a habit to batch your data entry. That’s right. Collect it ALL over a week or a month, then sit down and get it done in one sitting. It is a very efficient time saver. 

Make it a habit to deposit your cash receipts as soon after receipt as possible. Be sure the bank deposit is for the entire amount of cash received if you want your bank reconciliation to go smoothly.

Make it a habit to enter ALL your business expenses into your accounting system, no matter how small the amount. You will be surprised how all these small amounts add up over a year … and it ensures you don’t overpay your taxes by losing legitimate tax deductions. 

Make it a habit by developing a routine for your filing and always do it the same way ALL the time … no procrastinating.

Your Choice of Office Filing System Must Pass the Test

Keep in mind that if you have a computerized recordkeeping system (you enter data into a software program), your actual paper filing recordkeeping system can be more generalized.

That's because you can look a lot of things up within your organized, computerized data records ... reducing the need to "touch" a piece of paper to get the information you need ... BUT you still need the original source document trail, whether it was paper or electronic, for a tax audit. 

Don’t be afraid to play around. Experiment with some of the filing suggestions in this article until you find something that works for you.

Once you have made your choice of business recordkeeping systems to use, put it to this test:

• Does it meet Canada Revenue Agency’s (CRA) record keeping requirements and standards?
• Will you be able to easily purge or store historical documents to keep your immediate work area clean and efficient?
• Does your business recordkeeping system let you find the document(s) you need quickly and efficiently?
• Can others, using your recordkeeping system, find the document(s) they need quickly and efficiently? … think employees, accountant, tax preparer, tax auditor. I know you are king of your business but it needs to be efficient for others working in your castle … I mean business. If others can’t work efficiently, it’s like throwing money out the window ... as easy as following a trail of bread crumbs!

Every Filing System Must Have Permanent Files

No matter what recordkeeping system you choose, you will need to set up a set of permanent file folders or envelopes that contains documents or summaries of important business papers. These are keep forever types of documents - no destruction date.

If you are incorporated you will need to keep your legal documents and corporate records. Here is an example of some of the paperwork:

Certificate of Incorporation and, if applicable, your Certificate of Continuation

• Annual Report filings
• Minutes of Board Meetings
• Issuance or transfer of capital stock
• Resolutions passed by the directors
• Bank account applications

Keep any paperwork to do with capital assets in a permanent file. This means you will want to photocopy any invoices you receive and file the copy here in this file. (Keep the original with the appropriate accounting period in the event of an audit or to look up information easily.)

Keep all your insurance contracts, loan papers and lease agreements in a permanent file.

Keep your income tax returns in a separate file as well … you get the idea … permanent files have to do with filing legal agreements / contracts and proof of ownership documents.

Matching Your Filing System to Your Organizational Style

Now for all the rest of that mountain of paperwork you get buried under so easily, you have choices ... 

The filing system should match your personality and the size of your business ... unless your style is a shoebox ... now that's not a style, that's just plain lazy!

Here are some suggestions on organizing your invoices and receipts and support documentation. Most small businesses use one of these recordkeeping systems:

• Numerically by accounting / tax line
• Chronologically
• Alphabetically
• Hybrid recordkeeping system
• Imaging - going paperless
• Portable document filing system (This is covered in a separate article and is great if you work out of your vehicle.)

Numerically by Accounting/Tax Line

Recommended for business owners who keep records solely for income tax purposes.

Chronologically by Date

Recommended for business owners just starting out.

This recordkeeping system is sometimes referred to as the receipts method filing system. This simple filing system for organizing your business receipts is my favorite. It takes the pressure off of you by getting rid of the those huge piles of receipts ... and it does it without sorting.

With this method you have file folders that are divided into time periods. It may be 12 months but if you have very few transactions, it could just as easily be 4 quarters … a year is a bit too broad!

Office Alternatives to File Folders

• envelopes filed in a box, hanging files or hole punched in a binder
•  large freezer baggies for each month hole punched into a binder
• tickler file or accordion file
• plastic sheet (sleeves) protectorsto hold receipts by payment type and filed in a binder with the 12 months in the year. For each month you have three sleeves.
• One sleeve holds business expenses paid with cash,
• another with business expenses paid through your bank account, and
• a third sleeve for receipts pertaining to credit card purchases.

The sleeve method makes data entry a breeze because you don’t have to spend time tracing how the receipt was paid!

With this recordkeeping system, you file ALL your business transactions for the period in the appropriate file. No sorting. It just all goes in … invoices, bills, vendor statements, bank statements, credit card statements, receipts, government correspondence … everything ) OR you can have one envelope for income and one envelope for expenses… whatever works best for you.

It's the simplicity of this recordkeeping system, which is available when you are a small business, that makes it shine. Large companies could not use this method.

When you are ready to do up books for the period (how about creating a routine of doing it when you receive your bank and credit card statements), you take out all the paper, sort it into categories (or not) and enter it into your accounting program. Once you have entered it, you stamp the document with an “Entered” or “Posted” stamp so that you know it is formally recorded.

If you have been using good habits, you should be able to easily post the transactions to the correct accounts … so you have accurate financial statements. I like to key in my written notes or stories on the memo lines … you’ll see why in a minute.

After each year-end, the maintenance for this recordkeeping system is minimal. How minimal?

You simply file it all away in a storage box including the tax return, ready for a tax audit if it should ever happen. My preference is to keep two years ( current and prior year) active before it goes to storage.

This keeps your immediate work area free from excess paper and chances are, if you need to look something up , you can just look it up in your computerized recordkeeping system.

Remember I said I keyed in any extra notes about an invoice or bill? Here’s why. There should be enough information in the computer so that you don’t need to look at the original document and there is less of a chance your original document will get lost or misplaced. Why is this important? The number one rule with regards tax deductions - no receipt or support document … no deduction!

If you do need to look at the invoices / receipts, consider buying a ScanSnap and scanning the original documents ... so you have them on hand to reference ... and leave your original source documentents intact in the event of a tax audit. You need the originals for an audit because scanned receipts are not acceptable.

Even once you have to switch to a different system once you have too many transactions, you may still want to use this simple filing system for all your business receipts, not your invoices and bills, but all the little business receipts you collect throughout each day. I can't say it enough ... this is my favorite recordkeeping system.

Alphabetically by Vendor/Customer/Employee

Recommended for business owners who have a lot of transactions ... for example, you need to do your bookkeeping daily or weekly to keep on top of it.

With this recordkeeping system, each vendor/customer/employee gets their own file with paperwork filed in reverse chronological order (most recent stuff is on top)...which works well for large organizations, but if you are a small business, you end up with a ton of files and many of them only have one or two pieces of information.

You can get around this by creating files with groups of letters to file such as A-D, E-J; and only have a separate file for large volume vendors / customers.

If your business gets to the point where there are "many fingers in the pie" and you notice customer and vendor invoices start to go missing, consider keeping the accounting records as described in option 2 and having copies of the invoices available for everyone to use and lose. Or start scanning and filing alphabetically online for their use.

The other problem I have with this method is purging the files when you are legally able to destroy your files or just getting some of the old information boxed into storage to keep your main area organized and efficient, not overrun with old files.

As it is not all in one place, you have to put time aside to pull out documents you want stored from different places and different files. A note here on storage boxes. If it’s going in the basement, make the storage container plastic to protect against possible water damage.

I have to say though, I like to use this method for employees … one file for each employee.

A Hybrid Recordkeeping System

Recommended once your business grows and your transactions increase. You can begin using color coded files if you like that sort of thing.

Use chronological filing (option 2) of:

• bank statements with cheque images (or canceled cheques) and reconciliations [orange]
• deposit slips [orange]
• credit card statements with reconciliations[orange]
• expense reports along with cash and credit card receipts paid from your personal funds [an envelope]
• payroll reports [blue]
• tax payments (by tax type) and tax reports [yellow]
• financial reports [manilla]

Use sequential filing (for audit trail) of:

• cheque vouchers with supporting documentation [acco binder]
• journal vouchers with supporting documentation [acco binder]
• customer invoices (optional) [green]
• vendor invoices (optional) [red]

Use alphabetical filing (option 3) of:

• customer files (optional) [green]
• vendor invoices (optional)[red]
• employee files [blue]
• insurance files [purple]
• permanent files (important documents) [purple]

You may use a form of methods 2 and 3 when the volume of transactions increases because you have more customers, write more cheques, increased government filing reports, and a large number of journal entries.

You can use Acco Binding Cases to file by how you look them up - numerically in sequential order or by date (most recent documents are on top).

So journal vouchers are filed sequentially with supporting documentation, cheque vouchers too.

Canada Revenue Agency reporting is filed by type of tax compliance and then by date with supporting documentation.

Bank and credit card statements are filed by date with their reconciliations attached.

Vendor vouchers are filed by date (again with most recent stuff on top) with supporting documentation but I pull out types of accounts I need to reference a lot. Legal bills are given an envelope or Acco Binding Case to themselves.

Once you move onto this hybrid method, now decide how to handle paperwork that needs to be entered into the accounting system.

What I do and it may not work for everyone is: I have an IN basket for data entry by business (I manage more than one). I open the mail. If it can be filed right away I do. If it needs to be processed, into the IN basket it goes. On bookkeeping day, I take the IN basket and enter it into the accounting system … stamping each piece of paper with a “Posted” or “Entered” stamp. (If more than one person is doing the posting, they are each issued a stamp with their initials so you know who handled the entry.) Then it gets filed into the Acco binders … right away!

Imaging - Going Paperless

When selecting this recordkeeping system, you get rid of as much paper as you can by scanning it in pdf format; or creating e documents for transmitting; and signing up to receive e documents where possible … using the same philosophy as above just in computer format.

I recommend that if you go this route, you will need a e-courier like Soft Trust Inc. or a drop box to transmit and receive sensitive and confidential data such as financial information.

You will also need off site backup in the event your computer fails.

Canada Revenue Agency permits electronic data storage and accepts it as supporting documentation as long as it is legible and it keeps up with technology. If technology changes so you can’t access it, it is your responsibility to convert it to current technology that is accessible.

Update May 2011 - I was writing an article for the IPBC newsletter on the paperless office. I contacted a CRA specialist on electronic recordkeeping. Here is my excerpt from that article on paperless recordkeeping systems:

"I wanted to know if the original receipts could be destroyed if a scanned copy was available. Would the scanned copies be adequate proof during an audit … or was it necessary to be able to produce the original receipts?

It turns out that scanning is not imaging and therefore you need to keep your original receipts.

The problem with scanning is the documents can be altered and are therefore not reliable. A scanned receipt would not stand as evidence in the courts.

CRA’s website points out that “imaging and microfilm (including microfiche) reproductions of books of original entry and source documents must be produced, controlled and maintained in accordance with the latest national standard of Canada as outlined in the publication entitled Microfilm and Electronic Images as Documentary Evidence (CAN/CGSB-72.11-930).”

Control is key. Scanning does not meet the guidelines established by the Canadian General Standards Board.

His advice was to keep your original receipts and documents for the required periods … and to request written permission from CRA prior to destroying them.

Two references he suggested that would be useful were the Information Circular IC 05-1 on “Electronic Record Keeping” and the Information Circular IC 78-10R4 on “Books and Records Retention/Destruction”.

I have also found that the CRA publication RC4409 titled “Keeping Records” is useful as well."

You can read the whole article on paperless recordkeeping systems at ipbc.ca> Community Blogs> Free Articles to Assist and Inform Bookkeepers> In The Forum - The Paperless Office published May 2, 2011.

The United States Department of Labor Office of Federal Contract Compliance Programs (OFCCP) website has some great information. There are a number of articles on going to an electronic format. If you live in Canada, don’t assume CRA’s rules will automatically be the same. Use the site more for general practices and then check with CRA policy.

I’m just beginning to play around with this as I’ve read so many positive things about it. I have concerns as a small business so until I have satisfied myself, I’m not ready to go completely paperless yet.

My biggest concern is computer security. I don’t have an IT department! and trusting financial information to sit on someone else’s servers means I have to trust the company hosting the server … like I said I’m not there yet but if I find a way to address the security issues, you can bet I’m there.

If I am doing data entry for an electronic document, I have a pdf reader that allows me to write notes on the document … so instead of stamping it, I type in that it has been posted or reconciled or whatever. Again I file it immediately to the appropriate electronic file.

Being organized allows you to track the progress of your business and look after your customers … so pick a method try it out and don’t be afraid to change it if it’s not working for you.

What Does a CFO Do?

For many privately held businesses, the decision to hire a chief financial officer (CFO) is often a difficult decision.  Beyond the issue of whether the company can afford a high-caliber financial professional, many business owners are often confused over just what it is that a CFO does or should do. 

More than just a glorified bookkeeper (or someone whose long service to the company has been rewarded with a fancy title), an effective CFO plays a number of important roles within the entrepreneurial company that are essential in providing a strong financial foundation for a growing business.  Listed below are some of the critical areas in which an effective CFO will work to provide financial support for a company’s business objectives.

Implements/Supervises Internal Controls:  A CFO is responsible for bringing important financial controls to a company.  Those controls should include the effective management of cash flow and overhead expenses, establishing credit policies for customers and working with major vendors to achieve more favorable payment terms, and implementing procedures for measuring and evaluating optimal inventory levels.  At a higher level, a CFO should also develop effective controls that provide oversight against fraudulent activities.

Handles Projects With Major Financial Impact:  Beyond implementing and monitoring company controls and systems, an effective CFO will also handle those projects that require significant quantitative and qualitative analysis in order to arrive at an understanding of the options that are available.  For example, a CFO will take responsibility for developing a company’s annual budget, interacting with the business owner and department managers to ensure that the final product accurately and objectively reflects the real requirements of the business.  A CFO might also conduct a thorough analysis of a company’s future capital investment requirements as a first step in securing additional financing.

Cultivates Relationships With Outside Financing Sources:  A major responsibility of an effective CFO is to establish good working relationships with banks as well as other financial institutions that may have an impact on the company’s ability to finance its operations.  Activities in this area can include regular meetings with officers at the company’s bank to review ongoing operations, negotiating more favorable terms for bank lines of credit, and discussions with private investors on how additional capital might be invested in the firm. 

Drives Major Strategic Issues:  An effective CFO can also be expected to play an important role in addressing major strategic issues that can have an impact on the company’s long-term future.  Such issues might include the development of an company acquisition strategy to help fuel additional growth, or the divestiture of particular product lines or business activities that no longer match the company’s business objectives.  A CFO would also play a key role in any effort to seek investment from the public financial markets or to launch an initial public offering (IPO).  

Serves As Key Advisor To Company Management:  Finally, an effective CFO is a key member of the management team of a growing entrepreneurial company.  Because of his/her financial acumen and general business knowledge, a good CFO will help the business owner and other top executives make the tangible connection between a company’s operations and its financial performance.

For more information about our Virtual Controllership or CFO2GO program, call (416) 803-5638.

The Controller's Role

Finance controllers, also known as financial managers, or in some cases Chief Financial Officer, are the primary managers of all aspects of organizations. These are senior executives, usually specialists in the financial functions of their organizations.

The Work Environment

Finance controllers operate at management level, both in terms of their organization as a whole and in terms of their own functions. The finance controller has delegated authority to operate the business accounts, approve expenditure, and control the financial operations of the organization at all levels. 

Responsibilities in this role include:

• Budget formulation and operation
• Advisory role at the senior level
• Financial reports and studies
• Contract management
• Financial management according to best practice
• Safeguards against fraud and misappropriation
• Operation of the business financial processes
• Management of the financial department and branch finances
• Management of financial aspects of corporate equity issues where applicable
• Management of financial issues related to products and services
• Oversight of cost efficiency issues

The role of a finance controller is one of the peak management jobs, but it's also one of the most demanding. There's not really a "generic" form of this type of management, except in the most basic business and financial principles. Financial management of a service industry business and a retail business, for example, can't be the same process. The role of a finance controller can vary considerably, depending on industry, and in fact many finance controllers are specialists within their own industry.

Finance controllers are required to be experts in their fields. These jobs come with significant expectations. Many organizations promote senior financial officers within their organizations to ensure that their finance controllers have the knowledge base required for the position.

This is also a senior executive position. A finance controller must deal with the organization culture, and be able to work with multiple levels of operational management on a basis of good professional working relationships. The role requires excellent interpersonal skills, leadership, and strong character.

This is also a "hiring and firing" role. Finance controllers are also managers, as well as financial experts. The position includes all aspects of staff and departmental management. At the level of finance controller, advanced management skills are required to deal with these issues as part of the job.

The Career Environment

Finance controllers do have a lot of job mobility, and within the financial role may progress quite rapidly to better jobs in finance. Generally financial executives move in clear career tracks through promotional advancement. At the top of the hierarchy, however, the career progression motif changes. Finance controllers have a large number of excellent options for further career advancement, but they're all challenging options.

Finance controllers are highly qualified managers usually entering or in their peak career phase in the purely financial sphere. The next stage of progression is extremely competitive, and not easy to achieve. Some may progress to corporate management level including Chief Executive Officer positions. This is a quite common form of career progression for senior financial executives. Many CEOs of major corporations are former Controllers or CFOs. The financial role is a necessary part of their qualifications for these positions.

For more information about our CFO2GO or Controllership services please contact us at (416) 803-5638.

How to Prevent Internal Fraud: Dividing Staff Responsibilities

Your primary protection against internal fraud in your business is properly dividing staff responsibilities when the flow of business cash is involved. Many business people start their operations by carefully hiring people they think they can trust. Unfortunately, those who have learned the truth are the ones who put too much trust in just one employee.

Basically, you should never have one person handle more than one of the following tasks:

• Bookeeping: Involves reviewing and entering all transactions into the company's books. The bookeeper makes sure that transactions are accurate, valid, appropriate, and have the proper authorization. For example, if a transaction requires paying a vendor, the bookeeper makes sure the charges are accurate and that someone with proper authority has approved the payment. The bookeeper can review documentation of cash receipts and the overnight deposits taken to the bank, but he or she shouldn't be the person who actually makes the deposit. Also, if the bookeeper is responsible for handling payments from external parties, such as customers or vendors, he or she shouldn't be the one to enter those transactions into the books.

• Authorization: Involves being the manager or managers delegated to authorize expenditures for their departments. You may decide that transactions over a certain amount must have two or more authorizations before checks can be sent to pay a bill. Authorization levels should be clearly spelled out and followed by all, even the owner or president of the company. As owner, you set the tone for how the rest of the office operates; if you take shortcuts, you set a bad example and undermine the system you put in place.

• Money-handling: Involves direct contact with incoming cash or revenue, whether check, credit card, or store credit transactions, as well as outgoing cash flow. The person who handles money directly, such as a cashier, shouldn't be the one who prepares and makes bank deposits. Likewise, the person writing checks to pay company bills shouldn’t be authorized to sign those checks; to be safe, one person should prepare the checks based on authorized documentation, and a second person should sign those checks after reviewing the authorized documentation. When setting up your cash-handling systems, try to think like an embezzler to figure out ways someone could take advantage of a system.

• Financial report preparation and analysis: Involves the actual preparation of the financial reports and any analysis of those reports. Financial reports should be prepared by someone who's not involved in the day-to-day entering of transactions in the books.  For most small businesses, the bookkeeper turns over the raw reports from the computerized accounting system to an outside accountant who reviews the materials and prepares the financial reports. In addition, he or she does a financial analysis of the business activity results for the previous accounting period.

If you are just starting up a small business, you may not have enough staff to seseparate all these duties. Until you do have that capability, be sure to stay heavily involved in the inflow and outflow of cash in your business by following these guidelines:

•  Open your business' bank statements every month, and keep a close watch on the transactions. Someone else can be given the responsibility to reconcile the statement, but you should still keep an eye on the transactions listed.

• Periodically look at your business check voucher system to be sure there aren’t missing checks. A bookkeeper who knows you periodically check the books is less likely to find an opportunity for theft or embezzlement. If you find that a check or page of checks is missing, act quickly to find out if the checks were used legitimately. If you can’t find the answer, call your bank and put a stop on the missing check numbers.

• Periodically observe cash handling by your cashiers and managers to be sure they’re following the rules you’ve established. It’s known as management by walking around — the more often you’re out there, the less likely you are to be a victim of employee theft and fraud.

What is the Difference Between a Bookeeper and an Accountant?

Bookkeeping is a task oriented function that routinely and systematically records the organisation’s day-to-day financial transactions. Accounting is more results oriented than bookkeeping in that it is involved more with the interpretation and use of accounting information than with its actual preparation.

Definition of Accounting

• an informational process that identifies, classifies and summarizes the financial events that take place within an organisation
• a reporting system that communicates relevant financial information to interested persons, which allows them to assess performance, make decisions and/or control the economic resources in the organisation

Now, as a rule, bookkeepers only do the first element while accountants, who could do both, generally do the second. This is because accountants are uniquely specialised professionals whose time would be poorly invested in tasks that a computer + accounting software + a competent bookkeeping person could easily perform.

Bookeepers

Bookkeeping is generally the tedious, clerical and exacting role in the accounting system. These days bookkeepers use computer and accounting software like QuickBooks to do much of this work. Bookkeeping is a task oriented function that routinely and systematically records the organisation’s day-to-day financial transactions.  The bookkeeper function is performed primarily by skilled clerical personnel who may or may not have had any formal accounting training. They will however, have a basic knowledge of the 'double entry system' which ensures that financial transactions are recorded correctly. 

Bookkeepers are required to classify transactions into the correct ledger accounts as previously determined by the accountant and business owner. A final check in the bookkeeping process is called a 'trial balance'. This summary makes sure that the financial transactions have been correctly recorded. At this point the bookkeeper usually hands the system over to the accountant who performs the second element of the accounting function - the analysis and reporting.

Accountants

Accountants deal with the big picture. They set up the overall structure and design for both the financial information capture and the appropriate financial reporting functions. Accounting is more results oriented than bookkeeping in that it is involved more with the interpretation and use of accounting information than with its actual preparation.

Accountants are responsible for reporting to governments and statutory requirements. These reports include the preparation of the Statement of Financial Performance and the Statement of Financial Position. They also work to prepare reports and give advice that assists business managers in the development of their enterprises. Advice ranges from evaluating the efficiency of the business operations, resolving complex financial reporting issues, cash flow and profit forecasting, auditing to check the accuracy of the information, tax planning and lawful tax minimisation and redesigning the business accounting systems to ensure maximum efficiency. Generally accountants need to be highly qualified with a university degree plus membership of a peak accounting body that is maintained by the accountant's continuous professional development.