Running a business will require you to do accounting. Everyone hates doing that stuff, but it has to be done. One thing many people will do when starting a business, is ignoring the important thing of getting organized. In the beginning there are no customers, no income – just expenses. That’s easy. All you need is a shoe box and you’re done, right!? Then business starts picking up and you are too busy to keep track of everything right away. So, the old shoe box still looks pretty empty and you are sure you will do the accounting next weekend or the weekend after at the latest.
12 weeks later down the road, the shoe box is full. What now? You’re too busy to think about the accounting stuff now and just keep on piling up the receipts for income and expenses.
You need to get organized early enough in your venture. Don’t start ‘doing it later’. Accounting is not something you can push out and catch up on it later. How do you know if you have positive or negative cash flow? What if you need a loan and your banker asks you for an income statement? What if your house burns down and with it all the receipts for income and expenses. Yes, the money might be in your account but the IRS still wants to have a complete tax return from you.
An easy and affordable way of keeping track of everything, is to use an Excel spreadsheet. It might not be the most sophisticated accounting software, but it will give you most of what you need. One page lists all the expenses and the other lists all the income. That would be smallest thing you need to do to keep track of the expenses. If you want it a little more sphisticated, you start using the functionality of Excel and use the calculation options it offers. Split your expenses and income into months and have Excel do the math. You now can even see your cash flow – how much money does come in and how much do you spend. Well, that’s a start, but why not take it to the next level? You are investing in hardware. Hardware cannot be written of in one piece if it is a significant investment for your business. The amount of your investment needs to be split over several years. Use Excel to do this work. Again – the mathematical calculations it can do for you, will allow you to build cash-flow statements, budget listing and much more. As most people have Excel on their computer, it is the most affordable way to keep track of your income and expenses and to have the accounting nightmare avoided. If you do not have Excel – try Open Office – an open source Office package. It has something similiar like Excel to offer.
If you are willing to spend some money (but not too much) you can use Quicken or Money as your account software. It allows you to generate reports and it automates many tasks (like recurring payments). The 2 software packages are easy to learn and upgrade costs will be low. In many cases these software packages come with a new computer from the factory. Can’t beat that. Both software packages also come in a small business version with added features for small businesses. Not the real thing – but a good start. If you are already using Quicken or Money for your personal finances, this might be the best solution to go with.
If you know that your business will grow fast and big, you should consider a professional accounting software. Quickbooks, Simply Account, Mind Your Own Business – MYOB and Peachtree are the most well-known account software packages out there. They are more expensive but offer you a full-blown accounting solution. You can even integrate a merchant account into some of these software applications. Imagine that – automate your recurring billing. Instant money and instant accounting updates. The bad thing is – these software packages require knowledge to make them work. If you do not have an accounting background, this can be a challenge. If you are serious about running a business, you can hire an accountant for the initial setup of Quickbooks (just as an example) and he/she will configure it for you. Or you go and take a training class at a local community college to get up to speed. “Computer Moms” is a small consulting company (Franchise). They are showing up in more and more cities. They offer one-on-one training for Quickbooks, too (at least where I live).
If your business or your income situation gets complicated – consider hiring an accountant. They are not as expensive as you think ($35 – $80 per hour) and you will have your peace of mind. You basically just deliver them all your paperwork and they will take of it for you. The initial start-up might be a little expensive, but once you have this thing going, you will be glad you did it. An account might also be a good choice for your very first tax return. He/she will help you that you do not overpay the IRS and that you do not miss out on money-saving tax issues.
Be smart – get organized. Don’t save money at things where it can cost you much more than what your intial saving would be.