Home Business

Tracking Invoices and Work From Home Income

For most service-based work, you will need to send an invoice to your clients. You should number your invoices in sequential order, although what number you start with is up to you. Record each invoice number, as well as the date, description, marketing code, and amount of money invoiced. The description should briefly state who the invoice was sent to and what project or work it covers. (More detailed information will be on the invoice itself, as well as in email communications and contracts with the work from home client.)

You can use your invoice-tracking document to help track the source for each project you invoice. That way, you know what marketing methods have been the most successful in your business. Adding a “marketing code” to your invoice tracking document is one way to record this information. Because it is your business, you will develop your own codes. Some suggestions are as follows:

P for postcard mailings
G for groups you belong to
W for former co-workers or those from your former company
R for referrals from current or former clients
M for magazine ads

You might also want to make these codes more specific; for example, “P” for referrals from your PTA contacts, “1QP” for the first quarter postcard mailing, and so on. As I said, the system is really up to you. The goal is to keep track of what kinds of advertising and publicity work best for you so that after your first year, you can clearly see exactly where to put your marketing dollars and why.

If you sell products, you probably won’t send an invoice for each book, basket, or piece of jewelry sold. However, you should set up a separate sales record spreadsheet that keeps track of these amounts, as well as any sales tax you collect.

Must Have Hard Copy Work At Home Business Records

Electronic documents are easy to store and take up much less space. But as of this writing, there are still some things that should be kept on paper. Technically, you can scan every scrap of paper you might keep and store it electronically. However, you might prefer, instead, to keep the paper version for awhile, and only go the scanning route if you are certain the document is likely to be kept for archival purposes only.

Also, some legal documents can come into a gray area. If you signed a contract with a client, keep the paper copy. It’s much easier to prove the contract was actually signed. Here is a list of the paper records commonly maintained by most businesses:

1. Client contracts. These are the contracts you and your clients sign when you agree to perform services. If the agreements are email/letter exchanges only, be sure to print those out and keep them in the same place as your other contracts. Get any verbal agreements confirmed in writing, even if it is only an email or letter reiterating your conversation.

2. Working papers of current and past projects. These are the notes, research, drafts, and other items from each project. If you have a database of your work, these files should have the inventory number of the appropriate work.

3. All business-related receipts (even if only part of the expense is home business related). Credit card slips should be saved, even though you will also have a monthly statement. Expenses in which only part of it is a business expense (for example, your electric bill) should also be saved.

4. Informational files. These are files about groups you belong to, issues affecting your service or subject matter, and copies of all marketing materials.

5. Copies of tax returns, beginning with the year you start your business. (You should probably keep your returns from prior years, too, although for nonbusiness reasons. Check with your accountant or with the IRS website, www.irs.gov.) The same goes for state and local taxes.

6. Previous versions of your business plan. As your home business plan changes and grows, you will want to keep past copies. Print your business plan and file a hard copy once every six months, or just before and after making broad changes to it.

Setting Up Home Business Expense and Income Records

If you’ll be taking on all the tasks associated with owning and running a home business, you will need to keep systems as streamlined as possible. A little bit of effort now in organizing your expense and income records will save you days and days of frustration later. In addition to saving you tons of extra work and frustration at tax time, keeping your income and expenses relatively up-to-date will give you an always-current picture of how much money you have brought in and how much money is going out.

Before you begin, review the budgeting so that you are familiar with the type of home business expenses you will need to track. The easiest way to set up income and expenses is to base the categories within your records on those in Schedule C of your federal tax return. To obtain the most current Schedule C, go to irs.gov and download the most recent form. Print it, and read through the directions.

Recording Home Based Business Expenses

The percentage of home expenses will depend on how much of your home you actually use as your home office. Let’s say that you have a 1,000 square foot home, and of that, 250 square feet is used as your home office. Therefore, you use 25% of your home for a home office. That means 25% of your utilities and rent/mortgage will be deductible as a business expense.

If you plan to sell your home shortly, discuss the home expense deduction with your accountant or tax preparer. When the home is sold, you might have to repay some of this amount. At the end of the categories, you should have two numbers off to the side. One is labeled “Total Expenses,” and it will add up all the expense columns - simply create a formula that adds up all the expense column totals, not including the working number columns for entertainment and household home business expenses. This supplies you with the total amount you have spent to date this year. The other number is labeled, “Net Income This Year.” This is the result of taking the total of all “Income” columns and subtracting the “Total Expenses” number.

This number is the amount you have actually earned after deducting business expenses. Much of this spreadsheet is tax related; however, don’t forget to also keep track of other, tax-related information, including home mortgage interest, charitable deductions, and IRA contributions.

Watch tomorrow as we show you how to track your home based business invoices and record your work at home income.