Bookkeeping is tedious, confusing and something you’d rather not think about says Aron Govil. But it can mean the difference between staying afloat in your business and sinking like a rock. It’s simply the act of recording every business transaction – from daily sales at the coffee shop to making payments on your car loan. You don’t have to be an accountant (although they are certainly welcome). All you need is one good bookkeeper, who may not even know how to do your books but knows how to find someone that does.
Here are some ABCs of bookkeeping: A-Accounting Software; B-Books; C-‘Been down this road before.’ (We’ll explain.)
- The A-You’ll be able to use it for business and personal expenses, tax deductions (yes), accounts payable (getting paid) and accounts receivable (sales). Depending on the software you use, you can pass your books in an instant to your accountant at year’s end. Using accounting software will keep you organized because all the information in one place is just too good to miss or lose says Aron Govil. Nowadays, most programs are easy enough to learn that even the smallest business owner can master them without feeling like Spock at a disco. Still need help? Then hire an entry-level employee so he/she can play with the computer all day long while getting paid hourly wage.
- The B-Books basically give you historical information about your business. They contain all the records of past transactions, which is why you need them. You can’t build a house without a hammer and nails, right? And even with the most sophisticated accounting software, if you don’t have books to back it up, you could be in bad shape at tax time. So buy ledgers – they’re cheap (about $20 for 100 pages). For every transaction that goes through your shop or office, write it down on an invoice or deposit slip before placing it in the proper ledger-each one has its designated spot so you won’t lose anything. A separate ledger should be for cash tips since this information will be in need when doing your taxes. If these aren’t readily available for some reason, simply use your accounting software’s transaction register. Money in the bank is good but getting pay is better!
- The C-Been down this road before. There are some money moves that you must pay attention to or you’ll find yourself crying in your beers when Uncle Sam comes for his cut next April 15th.
Here’s another important rule you can’t afford to forget:
- Never mix business with pleasure – which means never put personal expenses on your business account whether it is credit cards, checking or savings accounts. It will confuse the IRS and make for a slippery slope of deductions come tax time if they happen to think your personal expenditures are actually part of the company’s expenses. Once again, using separate ledgers can help here, too.
- Finally, keep your receipts! This is very important because without them, you have no proof that certain expenses were for business explains Aron Govil. Once again, separate in-boxes or in-folders are great to stash in your desk drawer until tax time when you’ll need them.
- By the way, what’s with getting paid? If you’re not happy with how much you’re taking home at the end of the day/week/month then it may be time to reevaluate your prices or products sold. Charging too little means giving away money while charging too much could mean losing sales. But it’s up to you – what’s more important…profit or volume?
- Bookkeeping is a lot easier said than done but this ABCs of bookkeeping will at least give you a head start. Now the ball’s in your court says Aron Govil.
Conclusion:
If you are already using some sort of bookkeeping software for your business (i.e. QuickBooks), it is probably best not to mix your personal and business transactions.
If you are using a spreadsheet, I would recommend that you separate your expenses and income into its own tab or sheet, for example, “Personal Expenses” and “Business Income”.
Nobody wants to do bookkeeping, but making it easy on you will pay off in the long run.