Creating a Usable Bookkeeping System
Lesson 2 from: The Small Business Simple Guide to FinancesAmy Northard
Creating a Usable Bookkeeping System
Lesson 2 from: The Small Business Simple Guide to FinancesAmy Northard
Lesson Info
2. Creating a Usable Bookkeeping System
Lessons
Know Your Worth
1The Foundation of Your Business
09:38 2Creating a Usable Bookkeeping System
05:52 3Taxes
06:45 4Get Paid
05:48 5Small Business Deductions
06:30 6Retirement Contributions
06:12 7Income Statements
05:26Balance Sheet
05:39The Foundation of Your Business
Lesson Info
Creating a Usable Bookkeeping System
1 (upbeat music) 2 Welcome back. 3 Now that you've selected your business structure 4 and open your bank accounts, it's time to think through 5 how you'll keep track of money. 6 To do this properly, we'll need to get down 7 to the nitty gritty of bookkeeping. 8 In today's lesson, I'm going to cover four steps you need 9 to ensure your bookkeeping is as accurate 10 and stress free as possible. 11 We'll cover how to choose 12 and set up a bookkeeping system, 13 organize receipts and bank statements, 14 categorize transactions, and reconcile business accounts. 15 Alright, let's jump into step one. 16 Choose and set up a bookkeeping system. 17 There are many different options 18 for recording your income and expenses, 19 but you know what you'll be willing to do, 20 so choose the option you'll actually use 21 on a consistent basis. 22 There's absolutely nothing wrong with getting started 23 with a pen and notebook. 24 You can write down income and expenses as they come in. 25 Then at the...
end of each month, add up all your income, 26 subtract your expenses, 27 and you'll have an overview of how you did for the month. 28 Spreadsheets are the next jump up from pen and paper. 29 Instead of hand calculating all of your numbers each month, 30 you can use formulas to add up the totals. 31 Just keep in mind that as your business grows, 32 keeping track of invoices, sales tax, and expenses 33 becomes more difficult when everything 34 has to be handwritten or hand entered. 35 If you'd like something a little more powerful, 36 accessible from anywhere and with advanced reporting tools, 37 I recommend choosing a cloud accounting program. 38 This will allow you and your accountant 39 to work together much easier than sending screenshots 40 back and forth or emailing files to each other. 41 The cloud accounting program 42 that I recommend most is QuickBooks. 43 This is the big name in accounting software. 44 I will caution you 45 that some clients find the program overwhelming. 46 However, since the software is so popular, 47 you can generally find a detailed answer 48 to any question on YouTube. 49 If you decide to go with QuickBooks, 50 you'll need to pick the subscription 51 that meets all of the needs for your business. 52 Well, least expensive QuickBooks subscription 53 does not offer accountant access or invoicing. 54 Be sure to watch the bonus how-to videos 55 for using QuickBooks linked in our lesson guide. 56 Even if you're not going to use QuickBooks, 57 the videos can help you visualize 58 how your books should look. 59 Just like with picking a bookkeeping system, 60 there's also many ways you can organize receipts 61 and bank statements. 62 Again, you'll need to pick a system that you'll stick with. 63 When deciding, remember that you'll need to keep copies 64 of everything for at least seven years. 65 One of my favorite options is 66 to use 13 letter sized envelopes. 67 Label each envelope with each month, 68 and then use the 13th envelope for any tax forms 69 or documents you receive throughout the year. 70 Each month, just throw your receipts 71 in the envelope as they come in. 72 Then at the end of each month, print out the statements 73 for each of your business accounts, 74 like your checking, credit card and PayPal accounts, 75 and put them in the envelope. 76 If you don't like having a lot of paper around, 77 then you can use the scan and toss method. 78 You can use a scanner or a smartphone 79 to scan all of your receipts, 80 and then just toss the originals. 81 As long as you can easily find the receipts, 82 the IRS says, this is totally acceptable. 83 Just make sure you back them up in a safe place. 84 Another useful method is to create an expense folder 85 inside your email account. 86 You can easily drag and drop all of your email receipts 87 in there so they're easier to find later. 88 Of course, you'll have two main types of transactions 89 you'll need to keep track of in your bookkeeping system: 90 income and expenses. 91 You don't necessarily need to categorize 92 the types of income you receive, 93 but you'll wanna closely keep track of 94 and categorize business expenses. 95 This will help ensure you don't miss out 96 on any tax deductions. 97 We'll talk more about those in lesson five. 98 Even though all expenses should be categorized, 99 I'm going to share a little secret with you. 100 With the exception of meals, entertainment, 101 cost of goods sold, and car expenses, 102 the categories you use for everything 103 don't really matter that much. 104 Also, don't be afraid to come up 105 with your own category names to meet your needs. 106 This next step is one that most business owners put off 107 or skip entirely, but it's very important. 108 You'll need to block out time in your schedule each month 109 to sit down and reconcile each account. 110 When you reconcile, make sure 111 what you have in your bookkeeping system 112 matches exactly what your bank is showing. 113 If there are differences, 114 you need to figure out what's causing them 115 and correct those problems. 116 I recommend scheduling a recurring meeting with yourself 117 the first Monday of every month. 118 During this time, 119 if you're using an online accounting program, 120 make sure all of the transactions for the month 121 have been categorized and accepted. 122 If you're using the pen and notebook method 123 or spreadsheet method, 124 log all income and expenses for the month 125 and assign categories to the expenses. 126 Once the data entry is done, you'll reconcile your accounts. 127 Most cloud accounting programs have a tool 128 to make it easy to see when everything matches up. 129 If you're using QuickBooks, 130 our lesson guide includes the steps 131 and how-to video for reconciling your QuickBooks account. 132 Alright, those are the four steps 133 to get going with bookkeeping. 134 Ready to start your bookkeeping journey. 135 Start by using our lesson two checklist, 136 then meet me in lesson three, which is all about 137 how to stay on Uncle Sam's good side.
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Business Basics