Congratulations on starting your own business! Sometimes it is easy to come up with a great idea but managing your resources and making it a reality can be quite a challenge.
Regardless of whether you’re quitting your job to start a business or starting it on the side, taking this step takes a big decision. As a result, this takes a lot of time, energy and most importantly, a financial commitment. It is imperative then for business managers to get their finances in order. To achieve this, there are some steps you can take to give yourself the best chances of success.
Draft a business plan
This is the first thing you should do. Set aside ample time to contemplate and put down in writing what you want your business to be. The plan does not necessarily have to be for banks or investors but should serve as a guide outlining your plans for the business. It is a valuable communication and management tool vital in driving the success of your business. Please see my post on business plans that includes a template to help you get started.
Bookkeeping
Why is there so much emphasis on bookkeeping? Accurate and up to date information of your books will help monitor how your business is doing. For example, by running reports of the entries made into the bookkeeping system, you can monitor sales and review how much you are spending on expenses. By reviewing your financial reports, you may spot opportunities by showing where and when sales activity is peaking. Being unaware of your business finances is like driving a car without any dashboard displays: you won’t know how fast you’re driving, when you’re going to run out of fuel or when you need a service.
The main aim of a business is to make profits. By monitoring your financial reports throughout the year, you are able to determine the profitability of the business and make well-informed decisions as they pertain your business operations.
How to Get Organized
Most of the small business owners venture into business because they have a passion for what they do or a cause of what they believe in. However, this may not include how to set up a system and organize the financial piece of the business. That’s where we come in. We fill that gap by helping small businesses become organized and help set up and maintain the bookkeeping system. There are many reasons why hiring a bookkeeper to help with this part of your business is important. Please see my post on Why Hire a Bookkeeper.
Approaches to Bookkeeping
Set up a bank account
The bank account should be separate just for your business as it is inadvisable to co-mingle your business and personal finances. Although this may seem like such an obvious idea but I’ve seen many new businesses owners run everything through their personal account. This makes it hard to separate the business finances from your personal finances. If your business is structured to file as an S Corporation or LLC for IRS purposes, you need to show this distinction clearly.
Organize your files
Most often with business startups funds have not been planned for to keep track of the bookkeeping. It comes low on the list of expenses and that should not be the case. Remember, if you don’t organize your business right from the beginning, in the long run, it can cost you more in time and possible penalties if taxes have not been calculated correctly. Here are some simple steps to help get organized that won’t cost a fortune.
What is the best way to establish your filing system? It’s important to have a separate system just for your business. This will be used for saving receipts, invoices to customers and bank & credit card statements. By having a reliable system, you essentially have a backup should there be any questions for tax purposes. Please see my post on how long to keep your business financial records.
- To ensure that you retain your records for the required length, here a few simple tips;
- Purchase an accordion file organizer for all receipts directly related to the business expenses.
- If you already have a filing cabinet, purchase file folders and set aside a portion of the file cabinet just for your business expenses.
- Or scan and electronically file receipts and statements on your computer or in a cloud option such as Dropbox.
- Once you know how to file your expenses, you then need or organize the files.
- Categorize and label the files with the various expenses you have. Make separate files for your bank statements and your credit card statements.You can even make a file for just one piece of paper if it helps access that information quickly when you need it.
- Set aside the time at least once a month to go through your paperwork and file accordingly. Label and provide short explanations for miscellaneous expenses. For instance, if you have receipts for meals and similar expenses from your credit card, write a name or two and explain who you met with and what you discussed, or what the expense was for if it’s not clear from the receipt. Note that if you don’t file these records at least once a month, before you know it, the end of the year will be here and you’ll be forced to spend more time and energy separating the information and filing. You also won’t have the ease of access should you need to search for a specific receipt over the course of the year.
What are the various ways to set up a bookkeeping system?
As a small business owner, if you’re taking care of your own bookkeeping, you will want something simple and easy to work with. If you are comfortable with your system, it is more likely you will stay on top of the bookkeeping each month. The information you are entering into your system should allow you to run monthly financial reports and reports at the end of the year when the time comes to prepare your Federal Tax Return. There are various ways to track these funds. Everyone works differently and it depends on how detailed you want to be.
- Starting with the most simplistic method, an Excel spreadsheet will provide an easy solution to tracking payments received and expenses related to your new business. Each month take the receipts and statements from your organized file folders and record them on the spreadsheet. Or you can look at your bank statement and record the information from there. All transactions are entered manually, but depending on how many transactions you have this may be a very easy solution that won’t cost anything.
- A second solution is to use QuickBooks Online. This software has a monthly fee depending on the features you are looking for. This is a better solution for small businesses and is an online option that can be accessed from your tablet and smartphone as well. The program allows for activity to be downloaded automatically from your bank and credit cards. It generates a wide variety of reports to help track the success of your new business.
- My final solution is to purchase the Desktop version of QuickBooks. This software can be purchased through Amazon.com or at your office supply store. This software provides a more robust solution. It provides cloud accounting solutions to small businesses and what’s more, you can use it for multiple years.
All in all, the most important thing is to be consistent with tracking your expenses. When done just once at the end of the year, it transforms into a long and tedious process and there will be expenses that are forgotten. To achieve and maintain success, expenses should be recorded at least once a month. I feel that is both realistic and achievable. A solution may be to add a reminder to your calendar or when you pay bills, make sure you enter the transactions into your bookkeeping at the same time.
Contact me if you would like to set up a consultation appointment to see how we may be able to help you with your accounting and bookkeeping needs.