21 – Accounting
For those who haven’t attended business school (and for many who have), accounting can be an intimidating subject. While it may be daunting, the concept is simple. Accounting is the process of tracking and analyzing how your business uses money.
Click here to access a basic cost worksheet for your business.
Keeping Records
The single most important thing you can do to stay on top of your finances is to have a system for tracking your money. Good records make life easier when tax season rolls around allow you to analyze the health of your business, plan for the future, and find ways to make you business more efficient. While there is not “right” system for keeping records, several tools can help.
The Old-Fashioned Way: For centuries, people kept track of business activities in “ledgers,” i.e. notebooks where sales and payments were written down. Using a ledger require commitment and discipline to ensure everything is written down in one location, in a timely manner. It also requires doing that pesky math by hand.
Software: Technology has come to the rescue of the math-challenged. An Excel spreadsheet might be sufficient in the short run, acting as a “virtual ledger,” but as your business grows, software specifically designed for business accounting will help. Accounting software makes generating reports and viewing your numbers in multiple ways as simple as a click of a button. Popular business software packages include:
- QuickBooks
- NetSuite
- Sage50
- Outright
Get Help!
Unless you have a great deal of experience in the realm of accounting, you may need an expert to help you get your finances in order. Two types of financial experts can keep your business on track.
Accountant: As discussed, a business has to pay taxes required by its legal structure. An accountant help with taxes and makes sure your business complies with financial regulations. Because an accountant can provide valuable business advice, recommend accounting systems, and help you plan a long-term strategy, meet with one in the early stages of setting up your business. Starting with the right financial systems can save you a lot of time in the long run.
Bookkeeper: A bookkeeper keeps day-to-day records of the business sales and expenses. While an accountant may help you set up the accounting system, a bookkeeper enters the information into the system on a regular basis. Depending on your personal strengths, you may be able to perform the bookkeeping duties yourself. However, if your business is complex, you’re bad with details, or you lack the time, hire someone to help you out.
| TIP: When looking for an accountant or bookkeeper, you need to find a good match for you and your business. Whoever you hire will become a critical part of you team and have access to sensitive information, so it’s important to find someone who you trust. Don’t be afraid to ask: · What’s your experience with small business? · What experience do you have in my industry? · What services do you offer? |
Best Practices
If you can’t afford a bookkeeper or accountant right away, remember to keep records of all your business transactions, no matter where or how you do it. The mechanism is less important than the information.
Also, make sure the business’s money stays separate from your personal money. If you personally receive payments from the business, track them so you know how much yo8 are making (trust us, the IRS will want to know). To help keep things separate, open a bank account for your business as soon as possible.
Finally, don’t be afraid to ask for help. Do you have a friend who owns her own business? A family member who’s really good with numbers? A neighbor who keeps the books at his church? Be creative and find help through your network of friends and family.
Beware of Scams
Some people will take advantage of your business. Be alert to people using:
- Directory Scams: If someone calls asking for information on you business to update an online listing, be aware that they may later bill you for the listing or ads you didn’t know you placed.
- Office Supply Scams: Be on the lookout for invoices charging you for office supplies you didn’t order or receive.
- Overpayment Scams: Be careful if a customer pays you too much, and then asks you to wire money back to him or a third party.
Vanity Awards: Although it’s nice to be recognized, be aware that some awards are just a way to get money from you. If you are approached about an award, research it to make sure it’s real and don’t give them money.
Complete the assignment before moving on. (You can either complete the assignment digitally on the fillable PDF or you can print the assignment, complete it by hand, scan or take a photo of it and upload it below.)
