Often seen as a daunting task, accounting and bookkeeping for new business owners can be difficult. However in reality there are a few basic pieces to nail down that will go a long way in keeping things organized and efficient.
Rememeber, accounting is a lot more than just being ready for tax season at the end of the year. Even more importantly for your business you need to know where your money is going and coming from. Managing your money lets you see what parts of your business are doing best, which clients are more profitable, what excessive expenses you might have etc..
Accounting tips to get you rolling:
Keep business and personal expenses separate. This rings especially true if you’re operating as a sole proprietor. Set up a separate checking account for your business. When moving money around make sure to always record it and where it is coming from so it becomes clear what were business related purchases.
Don’t fall behind on your basic bookkeeping activities. Make dedicated times to record everything. We suggest once a week doing a wrap up and putting in all expenses and making sure everything was recorded. Very early on you may only need to do this once a month as there might be very little cash flow back and forth but we still recommend checking up on things each week.
Automate it with software
Use a program to help automate the process. It is possible to setup a simple spreadsheet to record it yourself but you can also use something like freshbooks which has a free version and you can record invoices and expenses. When you do this setup basic categories for your expenses like office supplies, travel, food, wages, product development and any other major expenses your business will have. It is important to keep it simple but also have a general understanding of where your money is going.
Consult an advisor
One of the most important things you can do is spend time with a consultant who has done this before. Now this can get expensive but even 1 session can simply get your system setup and organized can go a long way. Also think outside the box about who you can talk to about this. Think about parents friends who might run their business or maybe the accounting department at your college can help. Also an organization like SCORE will actaully let you setup an appointment with someone for free to discuss this. They will usually be a retired accountant who is now just looking to give back!
At the end of the year you will hope to find as many deductions as possible. You also may not realize how many creative ways there are to get deductions on your business activity. For example if you work from home you can list part of your rent as a business expense. See our article on most common business deductions.
Also don’t forget to save all of your receipts for business expenses. While it is difficult do your best to save them once again to have that paper trail.
Most efficient: For many young entrepreneurs Freshbooks is going to be a great option to start. Freshbooks is free up to 3 clients and lets you invoice clients and record expenses easily. It is all extremely simple to use and is not that expensive if you do have to upgrade.
Most powerful: Quickbooks is more expensive upfront but no one can deny it is the most popular and powerful accounting solution. It may not be the solution if you are just starting and don’t even have that client yet but it is the best way to do bookkeeping as your business grows.