If you’ve been neglecting your financial books (or you don’t even have financial books), you are not alone. Most small business owners (and even more creative small business owners) don’t give their bookkeeping efforts much thought, 0r they think about them but then quickly push that thought out in place of something more fun and pretty and creative (we’re all guilty).
But here’s the thing, most small businesses fail (ouch) and even more small creative businesses fail (double ouch). Is this a coincidence? I don’t think so; it’s a precursor to a much bigger problem… Avoiding The Details.
Keeping records is a crucial part of running a business, and it’s not just so that you can properly pay your taxes either! Keeping records creates the opportunities for you to see trends, dips, and growth. Knowledge is power, and that definitely applies to your bank account! With all that knowledge, you don’t have to wonder how your business is doing – you know! And that knowledge gives you the tools to plan for a prosperous future. Avoiding the numbers doesn’t actually make them go away. Instead, it leaves you defenseless and lacking a clear path to follow. Far too many small businesses only realize they’ve begun sinking once it’s already too late, and all because they avoided the numbers.
SO HERE IS YOUR QUICK GUIDE TO RECORD KEEPING…
WHAT YOU MUST HAVE IN PLACE:
- A Separate Checking (and Savings) Business Account: If you don’t have a business license, you can just open a second personal account until you do get your license.
- A Business License: I’ve been asked many times to define the right moment in which to apply for a business license. I applied for mine immediately. More than anything else, it was a psychological thing for me. I was going to be successful, and I felt it was important to plan as such. Skirting corners by avoiding taxes wasn’t the road to success, and I knew it.
- A Place to Keep Receipts: Write on the top of the receipt to remind yourself what they were for (i.e., lunch with intern).
- A System to Record Financials: This could be Quickbooks, Excel, or even paper and pencil.
WHAT YOU ABSOLUTELY MUST TRACK:
- Business Receipts: Any receipts that contribute to your business should be categorized and filed.
- Deductible Expenses: This goes along with the first, but it’s important to remember that you will need some deductions for end of the year filings. We realized almost too late that I hadn’t spent nearly enough money and was going to be paying a huge chunk in taxes if I didn’t reinvest more into the business.
- Client Invoices: Every session should have a coordinating invoice, so that you can track sales orders and session fees.
- Credit Card Transactions
- Bank Deposit Slips: If you don’t “go to the bank,” then keep track through bank statements.
- All Lab/Vendor Invoices: You need to be able to see what your product expenses are in comparison to your sales; plus, you need it for the purpose of writing off taxes at the end of the year.
- Any Costs Contributing to Your Monthly Overhead: Even if you don’t have a studio, you do have costs! Think about reoccurring payments, prop purchases, home office space, etc.
HOW DO I KEEP IT ALL ORGANIZED?
You could ask 10 different people and get 10 different answers as to what’s the best way to keep your records organized. Ultimately, you just need to do something; preferably what feels best for you! You may choose to do it virtually, with good old fashioned paper file folders, or perhaps a combination would be best. If you’re great with Excel, create a few spread sheets. If you’re not, use a ruler and a pen to make up your own spreadsheet. The most important thing is just to be doing it. So look into what’s available and see what feels best for you! As for software options, Quickbooks is the obvious go-to for tracking expenses and keeping up on accounts receivables, so that might be a great place to start.
AT WHAT POINT DO I NEED TO HIRE A BOOKKEEPER?
There are 2 ways to know if it’s time to hire someone!
The First: If you can’t trust yourself to actually follow through and keep your own records organized and current (it’s okay to admit this; you are far from alone!), then this is the point when you should hire someone else to help! We all have our strong suits. If this isn’t one of yours, find whose it is and give the task to them!
The Second: If you have been keeping records (you should give yourself a big pat on the back!), you get to the point where you’re either clearing 6 figures and need help with tax stuff, or you’re simply ready to move some things off your plate and onto someone else’s, then bookkeeping is an easy and affordable task to delegate.
Quick Tip: If you’re ready for this next step, set up an appointment with three local bookkeepers/accountants. The first consultation shound be free. Look for someone who not only understands your business type but is a fun fit for your personality.
Keeping organized and clear records not only offers peace of mind, but it also helps you make better decisions for your business. Plus, you will just feel more legit! The most important thing to do, if you’re not already, is just to start! Don’t wait for the perfect method to show up, a huge chunk of time to knock on your door, or to be hit by a meteor and become a mathematical genius. Just start with today.
You’ve got this. Go you!
That’s great advice and thanks for sharing!
So glad you enjoyed it!! And you are very welcome!
Love the advise !
Since “deductions” isn’t always clear to new small business owners, I suggest clients look over their business tax return, or check out a tax for on IRS.gov, Forms & Pubs, then look through a 1120S as an example. Statement 2 would be quite helpful in figuring out how to track expenses so they are ready for return filing. And the 1125-A will give an idea of how to calculate manufacturing costs for this who make something…knit products, leather goods, etc..
So helpful Gwen! Thank you so much for sharing your insights!!
[…] taxes. Here are two resources to help you if outsourcing bookkeeping is on your squared list: Book Keeping 101 for Creatives and How to Hire an Account – 10 Questions to ask […]