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There are startups, and then there’s a start to every startup. By the time you set up a company and get an accountant involved you’ve already spent quite a substantial amount of money in small chunks here and there. Anything from getting a logo designed to domain name registration for the future website – these are usually small amounts, but add up quickly. To make things more complicated, you often bring your idea to life partnering up with someone else. How do you decide who needs to pay and how much?
Keeping track of your outgoings and capturing who paid for what is a good practice that would help you set up the foundations of an accounting process for any future company.
We are sharing one of the tools we personally use at Price&Cost – an expense tracker that allows you to log business-related outgoings and attribute each one to the person who paid for specific items. Depending on the split you’ve agreed – the tool will show each person’s contribution across all payments and who owes whom, as well as how much if you want to be periodically settling the balance between yourselves.
Just to ensure there’s no confusion, this tool is meant for your startup related outgoings before you’ve actually set up a business as a legal entity. Once you do (and you probably should sooner rather than later), you shouldn’t be paying for anything relating to the business from your personal card or, even worse, with your own cash. One of the main accounting principles when running a business is that you keep a company’s money separate from your own.
TIP: You can use this shared expense tracker for pretty much anything outside your work life – going for a weekend away with your friends? Log who paid for camping gear and that barbecue meat. Once you’re back it’s a breeze to settle between yourselves so everyone contributes equally.
Start with entering the names of the people who will be making payments. We’ve assumed in this expense tracker that the split is between 3 people and all of them will be equal partners in the future company. Therefore, we are entering 33,33% against each person. This setting will affect the calculation of what each person should have paid and, as a result, the variance.
You would normally pay your bills in one currency, be it US dollars or British pounds. Occasionally however, you will get an online service that will bill you in something else (e.g. euros).
Enter the abbreviation of your default currency and choose a secondary one. You will also need to enter the exchange rate between your primary and secondary currencies.
Once done you will be able to log payment in both currencies and the tool will convert it to whatever you’ve chosen as a primary currency. Sweet!
Enter the items name and check the currency is correct (this defaults to your primary currency, so change it if needed). Now, enter the contribution each person made toward that item in the currency you’ve selected. You can have single person paying for the item in full or a number of people contributing toward a single item.
The tool will display the total for each row in both the currency selected as well as your primary currency. You can also add notes if needed.
The concept here is simple – the expense tracker shows the amounts each soon-to-be shareholder actually paid (all in your primary currency) and the amount they should have paid (based on their share). The difference between the two is shown as variance. The aim is to keep this as close to 0 as possible to balance the contributions.