Rule #3: Use a System for Your Documentation
Systems provide tremendous leverage. If you have a system in place for your documentation, it will take less time to get your documentation in place and your documentation will be more accurate.
Many people wait until they are audited to put the proper documentation in place. This is a costly move as it often ends up in poor documentation and expenses being disallowed.
Here’s an example of a system I use for my documentation.
- I go to lunch with my business partner to discuss a new product.
- I pay with my credit card and get a receipt.
- I write notes on the receipt about who was there and the business discussed.
- I give the receipt to my assistant who scans it to a PDF file format.
- My assistant pulls my credit card activity online every week and verifies I have handed in receipts for all the charges. If there are receipts missing, my assistant tracks them down. The summary of charges and the receipts are then saved in a single PDF file.
- The PDF file is forwarded to the bookkeeper. The bookkeeper records the credit card activity in QuickBooks and files the PDF file in a designated area.
With this system, if an auditor needs to see my documentation for that lunch, I know exactly where it is. The best part – I’ve spent very little time on it.
This system works because I follow it every single time I use my credit card – it works for all expenses, not just lunch. This is why I make it a point to always use my credit card.
Occasionally I have to pay with cash so I have a system for that too.