There are many resources out there for starting a business, marketing your business and getting clients. Many options are available for putting together programs, getting online and all the other fun stuff that goes with starting your business. But what happens when the money starts coming in? What happens when the money goes out? How do you handle your bookkeeping task, or do you handle it at all?
The unfortunate thing about having your own business, is that you now need to track your income and expenses, you need to budget and keep track of how your money is spent, where your income is coming from, and what you may need to set aside for taxes! YIKES! This is the part no one wants to talk about. We LOVE running our business, helping our clients and customers and putting together our programs, but the BOOKS? That is the dirty little ugly part that no one wants to think about.
I have been doing small business taxes for over 25 years. Over that time, there is one common thing I have found with my small business clients: You hate doing the book work! Why? It is boring and sometimes difficult to understand. Putting a budget together and tracking your income and expenses takes time away from doing the stuff you love. Reconciling your checking and credit card statements is like having a tooth pulled, something to be avoided. How can we make it simpler? How can I help you to “avoid the shoebox” at the end of the year, or to spend a marathon session at the end of the year when you are forced to get things together to do your tax return?
Avoiding the Shoebox- I Understand YOU, Because I am YOU!
So do you have a box a folder or a bin where all of your receipts are right now? Maybe you are behind on your billing or not sure where to even start with setting up an online billing system. Perhaps you would love to offer credit card processing to your customers, but the options seem overwhelming right now. I bet you don’t have time to wash your hair some days, let alone sit down with the bank statement and reconcile it. Does any of this sound familiar? Would you like a better way?
I have a degree in accounting, and have still been there. There have been times over the years, where I have left it sit for several months, just because I couldn’t wedge in the time to sit in front of the computer and enter everything. There have been times when I felt like spending that time would take away from making money, so I let it pile up. Sound familiar?
What steps can you take to put your business’s financial health in order and perspective?
1. Decide on a business form.
If you are a brand new business, you will need to decide what form your business should take. There are several options, including sole proprietorship, partnership, limited liability company or corporation. There are benefits and negatives to each of these, and what you pick will depend on your business goals. If you have been in business for a while, this is something you may want to reevaluate as your business develops.
2. Create a budget and business plan.
One of the biggest mistakes entrepreneurs make is to fly by the seat of their pants without a blueprint to follow. If you are new to your business this may sound like an ominous task. If you have been in business for a while, but don’t have your books in order it can seem overwhelming as well. Budgets are, in my opinion, fluid, and created to be updated, adjusted and changed as your business develops. It is simply a plan to give us an idea of what we want to see happen in our business. In a best case, we have historical information (a tax return or profit and loss statement to follow). In a worst case, we are picking numbers out of the air! This is NOT a bad thing if you can work through with reasonable expectations. There are several ways to complete a budget, but I have found over the years that the easiest way is with a spreadsheet or as part of your bookkeeping software program. Excel or Google Docs both work well if you are not using bookkeeping software that includes a budgeting module.
3. Get a separate checking account, savings account and credit card.
When you create a business, the best way to keep things separate is to open separate accounts that you only use for business. If you comingle your money with your personal money, it makes it hard to see what you are really making. Once those two accounts have been obtained, you can go about figuring out how much you have available for income to yourself as well. Comingling of funds has the other side effect of not letting you see if you are making an income or not! Giving yourself a paycheck, no matter how small to begin with, helps you to see that your efforts are not being wasted!
4. Pick an accounting software system.
I suggest Quickbooks Online, because it allows you to invoice directly from the system, pay bills and print checks from the system and in many cases you can upload your bank statement right from your bank (if your bank offers this service). Whether you decide to go with Quickbooks or another option, it may be a good idea to meet with an accountant to get everything setup correctly from the start. I routinely work with people settings up accounting systems for them so that they get started on the right track.
5. Set aside ONE HOUR PER WEEK to maintain and review your numbers.
Just one hour per week when you are starting out. No matter who is doing your books, you need to know the numbers. How much did I bring in? Who owes me money? What are my expenses? Where can I save money? How close am I running to my anticipated budget? How well are my marketing dollars working for me? Should I be seeking new clients? Is my pricing structure working? There are SO MANY QUESTIONS that proper bookkeeping can help you answer! You will start to see benefits almost immediately. Knowing the numbers will help you to build a fantastic business that will lead you to the life you have in your dreams!
Jennifer Monsos CPA, MBA has over 30 years of experience as an entrepreneur and accountant. Currently she teaches accounting at Minnesota State College Southeast, Winona, MN, teaches yoga from her own studio, Simplicity Wellness in Wabasha, MN and does business coaching to help others realize their dreams! You can find Jennifer at www.jennifermonsos.com