Bookkeeping is a necessary evil that all business owners must face in managing their businesses.
Making sure you keep accurate bookkeeping records allows you to always know who owes you money and who you owe money to.
There are many reasons why you need to maintain up to date and accurate records
- Accurate records in order to prepare financial statements. Financial statements will provide you with crucial information such as what your company has for liabilities, assets and equity.
- Provide you with a glimpse at your company’s net profit for a given period.
- Allows you to determine if your company is progressing or not. If you keep good records, you will be able to determine which items are selling and where you may need to make improvements.
- Allows you to determine which times of the year business is slower of faster. This will help you determine when you can afford to make any large purchases or when you need to order more or less inventory.
- Should your company ever be audited, you will need to provide your financial records in order to verify all your expenses & income.
- Should you ever decide to sell your business, you will need accurate financial records to show potential buyers.
There's really nothing complicated to bookkeeping -it's as simple as keeping a daily diary of what you earn and what you spend.
So, the first thing you need to do is open a business account for your home business. Generally, in the US, this is simply a matter of asking the new accounts teller at a local bank for a business account registration card. Fill this card in, and with the small registration fee, send it in to the appropriate commissioner. In Canada, you need to have your business registered before applying for a business account, and you must provide proof. Once you have your home business registered and your new business account opened you can order your business cheques and start conducting business.
Drop by a local stationery store and pick up a loose leaf notebook, and a supply of paper. Index tabs are helpful as well - either to separate the months or the accountability sections for each item you sell.
Assuming that you want to make it as simple as possible, while at the same time keeping it as efficient as is necessary - here's what you can do and how you can do it.
On the first page in your notebook, write on the top line and in the middle of the page: Monday, January 1st, 2011 or whatever day you officially start your business. Then, as your orders/sales come in - if by mail, or via online payment (or whatever) as you open your mail - jot down, starting from the left side of page, the amount you received - dash -for what - from whom, and their address (if applicable). You may also want to number each entry for easier referencing and retrieval later.
Here's an example:
Monday - January 1st, 2011
INCOME
$5 - 2 dozen cupcakes - P. Sweettooth, Dirt Road (0001)
$175 - 3-tier wedding cake - M. Bride, Happy St. (0002)
$12 - Birthday cake - H. BBoy, Happy Lane (0003)
TOTAL INCOME: $192
EXPENSES:
$5 - 12 med. cake boxes - Box Factory (5555)
TOTAL EXPENSES: $5
That's all there is to it, As I said, it's really just recording what you receive and what you spend.
Then write the next entry, immediately under the first day's.
Carry on with this recording of the money you deposit, receive and spend each day with similar entries for every day -Monday through Saturday- for each week. It's simple, uncomplicated, and an accurate record of your business activity.
Then at the end of each month transfer your daily journal information to one of the low cost bookkeeping registers that you can purchase at your local office supply store, and that your tax consultant or accountant can work from. These people won't work from your daily diary, and will not transfer the information you record in it to a formal bookkeeping register without charging you a small fortune. It's not that big of a job, and if you do it after the close of business on the last day of each month, it won't take you but just a very few minutes. Then, of course, when you're ready to file your taxes, you simply give your bookkeeping register to whoever is going to do your taxes, and you're home free.
The bookkeeping register you'll need can be any simple columnar notebook. All you really need is some sort of notebook with a number of columns marked off, a title written at the top of each column, and a record of the money received for each day relative to the product or service each column represents. Then at the end of each month, you can simply add the totals from each column and you'll instantly know how much money you took in form each of your offers.
Beyond the date column, will be your record of expenses or money spent. Again, you should title each of the columns you'll be entering figures into, and then record your expenditures for items falling into those categories. Then at the end of each month, it's a simple matter to add the totals from each column and know exactly where you stand relative to profit or loss - how much you took in compared to how much you spent.
Of course, you can always use bookkeeping software to perform the same recording as outlined above. Most computers come with some sort of spreadsheet software, such as Microsoft Excel. This software is easy to set up and easy to use and can be used for both daily and monthly records.
There's also all kinds of different accounting and bookkeeping programs on the market. Most give you a free trial version to try out. You can check out a few different ones and see if you like them, how easy they are to set up and use, and of course, how easy (or difficult) they are on your budget.
So there you go. Keeping your books in order makes good business sense and doesn't have to be difficult or complicated. It's not so bad is it?
To Your Success,
Terry
