Accounting

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Real World Accounting for Small Business Owners

Author: Caroline Jordan

If you�re like me, you love accounting. It�s so fascinating and such an ingenious system. Don�t you just think that Double Entry Accounting is the most beautiful creation of all humankind?

Okay, let�s get real. You probably think accounting is boring and best left to pencil pushing geeks (like me!). I mean�BOOORRRRING! Total Snooze-fest!

Well, my friend, I�m about to introduce you to Real World Accounting for Regular People. But, be careful, it just may change the way you look at accounting FOREVER! In fact, one of my clients looked up from a spreadsheet one day and said, �Wow, I never knew accounting could be FUN!� You just might have the same experience.

For starters, a lot of people think accounting is about math, which is an immediate turnoff. Although accounting does include math, it�s more like a foreign language. All you need to do is learn the parts of that language that actually apply to you. Think about visiting a foreign country. You don�t need to be fluent in the entire language. You just need to know the important things like what to order (or not order) in a restaurant, how to get directions, and how ask where the bathroom is. It�s the same thing with accounting. You need to know what you need to know and the rest is unimportant. I mean, do you really need to know about corporate accounting practices or off shore financial transactions. Probably not.

So, how do you figure out what you need to know when you don�t even know where to begin? Follow me and I�ll show you!

The first thing you need to know is this. You must, must, must keep your personal finances and your business finances separate. Using your personal checkbook for all your transactions is a bad way to go. Here�s why:

� The Internal Revenue Service wants to know that you have a very clear distinction between your personal affairs and your business affairs. They want details. If you try to pass off personal expenses as business expenses, you�re violating tax laws. They don�t like that.

� If you ever plan to borrow money for your business or get credit from your vendors, your lender or vendor will want to see detailed records of your business performance. Handing them your checkbook register is not going to make them want to give you money or sell to you on credit.

� You need to know how your company is performing at all times so you can plan ahead, make adjustments in your operations, and make informed decisions.

� The more accurate your records, the more accurate your tax return. It prevents you from missing deductions.

� It�s the only way you�ll know whether your business is making money or if you�re just kidding yourself.

So, if you don�t have a separate checking account for your business, go get one. It�s easy and inexpensive and it will give you clarity on how your business is really doing.

The next step is your accounting system. Now, when I say �accounting system� I�m talking about an organized way of keeping track of your records. It can be computerized or it can be the old fashioned pencil and paper route. The important thing is that a) you have one and b) you use it.

Finding a System That Works For You

Your record keeping system needs to be designed so that it works for you. It should be:

� Simple to understand
� Flexible and adaptable to changing needs
� Inexpensive to develop and maintain
� Require little time to maintain
� Be handy and convenient to use

If you use a computerized accounting software package like QuickBooks, all those qualifications are met. I generally recommend QuickBooks to my clients because it�s easy to use and you can also find local support for set up and troubleshooting. I don�t whole heartedly recommend QuickBooks because I think parent company Intuit is losing touch with its core customer (we, the small business owners of the United States of America). There�s too much nickel and dime-ing and poor support. But, at this point, it�s still the most widely used system and certainly meets the needs of most small businesses as far as what it can do.

I do recommend that you get professional help in setting up your accounting system if you don�t have an accounting background. It�s a case of Garbage In Garbage Out. A well set up system will give you the best information with the least trouble. It�s less expensive to have it set up right to begin with than it is to have it cleaned up later.

Whatever record keeping solution you choose for your business, the key to success is actually using it on a very regular basis. Otherwise, your business struggles and you�re in constant danger of sliding into the Cash Flow Swamp.

Caroline Jordan is a small business mentor and consultant helping small business owners understand, diagnose, and improve cash flow in their businesses. For more information and resources to improve cash flow visit http://www.TheJordanResult.com/mastering.html .

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How To Start a Bookkeeping Business

Bookkeeping

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Mail Order Bookkeeping Basics

Author: DeAnna Spencer

INTRODUCTION

This information is provided for individuals who are starting a mail order business and require a basic bookkeeping system. It has been written for someone who has little or no bookkeeping background. No income tax or professional advice is rendered. Such advice should be obtained from a CPA or an Attorney.

The operation for any business requires a basic system to keep track of income expenses. There are two good reasons to keep good records.

1. It is the law. The IRS, State Income Tax Division and State Sales Tax Division (where applicable) requires you to keep complete and accurate records.

2. Keeping good records is good business. It helps you to understand your business better. It will let you know at all times how your business is doing -- how much money you are making or losing. In addition it enables you to analyze expenses and revenues. You can see how seasonal and other trends develop. All of this will help you to make sound business decisions.

BUSINESS CHECKING ACCOUNT

It is best to set-up a separate business checking account with your bank for your business. This account should be used only for deposit of business related income and payment of business expenses. In this way you a maintain a distinction between business and personal expenses.

STATE SALES TAX

You are required by law in most states to collect the appropriate State Sales Tax. This only applies for sales within your state. Out of state purchasers are not charged a sales tax. Only the end-user pays sales tax. If you should be selling to a dealer he can provide you with a sales tax exemption certificate.. In this case he is not required to pay the sales tax to you since he will be collecting if from his customers.

STATE USE TAX

THe Use tax generally applies when a company buys supplies or equipment for its own use from an out of state business. It does not apply when material or merchandise are bought from an out of state company which will be re-sold. The use tax rate is the same as the sales tax rate.

For specific information on regulations in your state call the nearest State Sales Tax Division in your area.

ACQUISITION OF EQUIPMENT

When acquiring office machines, such as typewriters, computers, copiers, furniture, etc. such expenditures are generally depreciated on your tax return over a period of time.. For specific information check with a qualified tax advisor.

EXPENSES RELATED TO A HOME OPERATED BUSINESS

If a business is operated from home in many instances a portion of rental, mortgage or other expense may be deductible when filing your income tax.. The same may apply to utility expenses. There are specific laws pertaining to this, and again you should get professional advice.

EXPLANATION OF FORMS

We have provided you with several forms. You can use them as they are or change them to fit your particular needs.

1. DETAIL OF MONTHLY EXPENDITURE FORM

In the left hand column you keep track of expenditures for merchandise and products that you resell to your customers. The accounting term is generally cost of goods or product, or cost of sales.. If you sell books by mail you would record your purchases for these goods (including drop shipments) in this column.

The right hand column should be used to record all other expenditures. You obtain this information from your business checking account. If you pay for business expenses by cash keep track of theses expenditures separately and enter into this column also.. If you also use one or more credit cards to pay for business expenses list these expenses here too.. It is best to designate a specific credit card to be used for business expenses only.. Do not intermingle personal charges. In this case you may be able to deduct the interest on your taxes.

2. INCOME AND EXPENDITURE FORM

Record your daily income in the left hand column. Since you may not have income on a daily basis in the beginning stages of your business you can record income less frequently, such as weekly or even monthly.

You may wish to keep a separate income journal. The purpose of such a journal would be to give you a more detailed breakdown of your revenue. Set it up in any way you feel it will best suit your needs. For example you may want to record new business separately from repeat business. If you sell dealerships and books, for example, you may want to record the revenue from dealerships separately from the revenue for books, etc.

In fact the right column of this form you can keep track of your expenditures by category. Again you can change the categories to suit your particular needs.

When you deduct your expenses from your receipts at the end of the month you will have an income or loss figure for your business

PROFIT & LOSS STATEMENT FORM

Here you show you monthly revenue, expenses and profit loss. There are no requirements for you to do this on a monthly basis..

Especially in the beginning stages of your new business, you may want to generate a Profit & Loss Statement on a quarterly basis, semi-annual or even annual basis.

SUMMARY

The above information and forms will give you a basic system. Tailor it to fit your own situation. You may want something more elaborate or less detailed. Or you may not even put all your business accounting on your P.C. If you are considering acquirING a software program to help you with your accounting I would strongly suggest you wait until you understand your business well. Also accounting software can be difficult to use for an individual without accounting background. A personal money management software system will generally be quite adequate for most small businesses.

Don't get overwhelmed by record keeping for you new business especially if this is something new for you. Governmental agencies do not require you to keep your books in a particular way but do require you keep good records. This also means that records must be substantial. Again your accountant can give you detailed information on existing requirements.

While the big task of any new business is developing sales and acquiring customers, good record keeping is generally found in successful business operations. Your records provide you with accurate present and past information that you as the owner and president of your company must use constantly analyze your business so you will maximize profits.

Copyright 2004 by DeAnna Spencer

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