So I know accounting is important for my business…WHERE DO I START?
The last two blog posts we have gone over some of the basics of accounting and bookkeeping. You are starting to realize how important bookkeeping and accounting are for business, but are like Savannah, my accounting bestie, WHERE DO I EVEN START?
Don’t worry in this blog post we are going over the next six steps you should take now that you have decided to get serious about the finance backend of your business.
Open a business bank account if you don’t already have one. A separate bank account for your business is important because it allows you to cleanly track your expenses in one place, but more importantly it shows that the business is separate from your personal activity. The separation is especially important if you have chosen to structure your business as anything other than a sole proprietor. Check out future blog posts coming on different options for structuring your business and a deep dive into business bank accounts.
Determine how you will get paid. You need a way to accept money from your customers. Yes, you could use checks or cash, but for the convenience of your customers accepting credit and debit cards is important. There are a lot of options like Shopify, Stripe, and Square. Using Venmo or PayPal as the friends option violates their policies because those platforms are meant for friend to friend not customer to business. It is a cost of doing business to pay the fees associated with payment processors. Check out future blog posts coming on different options for being paid.
Chose an accounting method – cash or accrual. For transactions, you either record them when cash was exchanged also known as cash basis OR you record them when business revenue and matching expenses when they are generated—not when money changes hands also known as accrual basis. For most small business, cash basis is the easiest way to go. The question you ask yourself when you are wondering if you need to record an entry is did cash change hands. If the answer is yes, then you would go ahead and make note of what happened. If you are curious if accrual accounting is right for you, send me an email and we can chat more. Most people reading are going to be on a cash basis.
Determine how you will record transactions. You can use something as simple as an Excel/Google Sheet workbook or you can invest some time and money into an accounting software. The advantage of using a software is that it can generate reports automatically for you so you can get a snapshot of your business quickly. The advantage of using Excel is that it is quick to start and doesn’t requiring any learning on how to use it since most of us are familiar with workbooks. If you are wanting to start with a software, send me an email and we can chat about how to set it up. Check out future blogs coming on a comparison of different accounting software.
Record transactions on a consistent basis. You will need to decide how often you want to look at your bank account and categorize transactions. This can be done on a daily, weekly, biweekly, or monthly basis. It really depends on how many transactions you have. It helps to be consistent with combing through your transactions so that you don’t have a mountain to go through and get overwhelmed. For this process you are going to want to open up your bank account and for each transaction (both inflows and outflows) you are going to want to assign it a category. This can be as simple as using our template or you can use an accounting software to help you with this process.
Review financial statements monthly. You should be reviewing your financials monthly to see how much money you brought in and how much money you spent. Beyond that you can look at things like if the Facebook ads you invested in this month really brought in more revenue, or if you are making enough money to afford the course to improve your skills. Check out future blog posts on what all you should be looking for when you review your financial statements.
Your Accounting Bestie,
Savannah