Post 3 | Book Keeping & Expense Tracking +
Now that you got some of the not-so-fun things out of the way, let’s do the rest of them, shall we?
The number one thing you can do in your business to save yourself a ton of stress is to KEEP GOOD BOOKS. When I first started, I was just using an accordion folder to organize receipts and doing everything by hand at the end of the year- I don’t recommend it. Here’s what you can do next to get your business started ahead of the curve.
Banking-
Once you have your business entity filed, you can open a business bank account. OR you can open a separate checking account that will be dedicated to JUST your business spending and income. If you’re a Sole Proprietor the ladder will work great. If you’re an LLC, and someone writes a check to your business and you don’t have a business account with that name on it, you’re out that money. So either way, it’s time to separate your funds.
Bookkeeping -
Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation. (via Wikipedia)
If you’re going to do the bookkeeping yourself, you’re going to need the Quickbooks app for your phone & on your computer. It’s all online and you can purchase a monthly subscription. Depending on how in-depth you want to go there are varying subscription types. Another great thing about having it online is if/ when you hire a bookkeeper, you can invite them to your account seamlessly.
Quickbooks Subscription Breakdowns can be found here : https://quickbooks.intuit.com/blog/whats-new/pricing-and-subscription-levels-for-quickbooks-online/
I would suggest skipping over Self- Employed and going right for Simple Start. Simply because the data you enter in the Self Employed Verizon cannot be carried over into the more robust versions - I also found this out the hard way and lost years of financial data… Again, I don’t want that to happen to you.
Helpful Accounting Vocab
The following terms are helpful to have some sense of what they mean when talking to an accountant. You may already know these terms, but having a quick reference in one place is helpful!
Expense -
An expense is the cost of operations that a company incurs to generate revenue. As the popular saying goes, “it costs money to make money.” Common expenses include payments to suppliers, employee wages, factory leases, and equipment depreciation. Businesses are allowed to write off tax-deductible expenses on their income tax returns to lower their taxable income and thus their tax liability. However, the Internal Revenue Service (IRS) has strict rules on which expenses business are allowed to claim as a deduction. (via Investopedia.com)
NOTE - You don’t necessarily have to know what a deductible expenses is and what is not. Your job is to keep good books so that your tax preparer can do the hard work for you. With the QuickBooks app you can easily put things into spending categories that will help you with taxes at the end of the year.
Some main categories for a creative business will included : materials and supplies, packaging, shipping, office supplies, online subscriptions, legal & professional services, advertising, art fair booth Fees, art fair application fees, Etsy listing + transactions fees, web hosting fees, credit card processing fees, tracked millage, just to name a few.
Now days most everything is done digitally and there is a paper trail online and through your bank account. But I hightly suggest that you also want to keep all your receipts OR use the QuickBook’s handy receipt capture to take a photo before tossing it.
OK, Deep Breath, lets keep going!
Write Off / Deduction -
A “write-off” is a colloquial term that largely refers to tax deductions, which reduce your taxable income. Any time an accountant uses the term “write-off,” it refers to the financial reduction of something. During tax season, people write off (or reduce) their taxable income by writing off business expenses. (Definition via Wikipedia)
Cash Flow -
Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business. Positive cash flow indicates that a company is adding to its cash reserves, allowing it to reinvest in the company, pay out money, or settle future debt payments. Cash flow comes in three forms: operating, investing, and financing. (Via Envesopedia.com) Operation cash flow would be the money for you to operate daily business needs. Investing would for example if you invested in a new piece of of equipment for your business like a computer, camera or machine/tool.
Profit and Loss Statement -
The profit and loss (P&L) statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year. The P&L statement is synonymous with the income statement. These records provide information about a company's ability or inability to generate profit by increasing revenue, reducing costs, or both. Some refer to the P&L statement as a statement of profit and loss, income statement, statement of operations, statement of financial results or income, earnings statement or expense statement. (via investopedia.com) This little statement is going to be your Best Friend! And when you sign up for quick books you can generate this with a click of a button. Its a snap shot of your business and where you are spending and generating money.
Profit-
Profit is a financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.
Asset -
In financial accounting, an asset is any resource owned by the business. Anything tangible or intangible that can be owned or controlled to produce value and that is held by a company to produce positive economic value is an asset. ... The balance sheet of a firm records the monetary value of the assets owned by that firm. (Via Wikipedia) Common types of assets include: current, non-current, physical, intangible, operating, and non-operating.
Main Types of Assets
Cash and cash equivalents.
Inventory.
Investments.
PPE (Property, Plant, and Equipment) .
Vehicles.
Furniture.
(via coporatefinanceistitute.com)
Liabilities -
Liabilities are obligations of the company; they are amounts owed to creditors for a past transaction and they usually have the word "payable" in their account title. Examples of liability accounts reported on a company's balance sheet include: Notes Payable. Accounts Payable. (via Envestopida.com)
Net Profit Vs Gross Profit -
Gross Profit is your business’s revenue minus the cost of goods sold. Your cost of goods sold (COGS) is how much money you spend directly making your products. But, your business’s other expenses are not included in your COGS. Gross profit is your company’s profit before subtracting expenses.
Net Profit is your business’s revenue after subtracting all operating, interest, and tax expenses, in addition to deducting your COGS. To calculate net profit, you must know your company’s gross profit. Your business’s net profit is known as a net loss if the number is negative.
Now I hope that this leaves you feeling a little more confident and tracking your business expenses and helps you communicate with a bookkeeper should you decide to hire one from the start- or later down the road. Click below for the worksheet to help you get started on your expense categories and tracking.
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Naming your business. Everything your name says about you and your business.