Depending upon your entity type and industry for your business, setting up the books for bookkeeping can be quite simple. For the purpose of this post I am going to discuss the two setups I am most familiar with. The first is based upon the IRS Form Schedule C. Page one of the form handles the income and expenses of your business to arrive and the profit and loss. The business expense categories listed are all that is needed in your accounting systems’ Chart of Accounts. Having this form handy keeps the Chart of Accounts clean and streamlined. You can always add sub-accounts for the things you want broken down for reports to be used internally. Another form I like to use as a reference is the IRS Form Schedule E. I love this form because my specialty is rental property accounting and it helps keep my clients Chart of Accounts clean as well. Page one of this particular form deals with the income from rent or royalties and the other page deals with other kinds of passive income such as income from Partnerships or S Corps. For this purpose, only the rents concern us. When you have property that you allow
Congratulations on starting your new business venture! It is challenging and rewarding and no day is the same. The key to making it all work is to automate and delegate when and where you can. One of the best things to both automate AND delegate is your bookkeeping. Starting your business with good bookkeeping practices early, will take a large load off your plate down the road. It is easier to catch mistakes in the beginning than it is to catch them in the end. These mistakes can be extremely costly and come with other consequences such as jail time or seized property if not caught and corrected in time. Do not be worried about having the money to pay for a professional regularly. My recommendation is to find a professional that understands your industry first. Be intentional. The goal is to find YOUR bookkeeper/accountant. Explain to them what you are looking for and what you need starting out and sign on to work with them. For example: You are starting an Etsy store and you have some inventory just recently purchased for the products you make. What you need: A bookkeeper/accountant who understands e-commerce, particularly the Etsy space and
As a bookkeeper, one common issue that I see with small business owners is the commingling of personal and business funds. It usually begins as a small purchase being made for the business accidentally with personal funds or vice versa. This is not a big deal if it is a one-time thing. When it becomes common place, larger issues can arise and the following questions need to be answered: For those personal purchases made using the business funds, are they being paid back to the business? Is the business paying the owner back for expenses made using personal funds? Are those business expenses that were made via personal funds being treated as an equity investment instead? Are the personal expenses paid for by business funds being treated as an owner draw? How will they affect the business and personal tax deductions? Aside from answering the above questions, deciphering what was a personal expense and what was a business expense so that your business receives optimal tax deductions and credits is CRITICAL. The time it takes your CPA or EA to do this can cost you thousands. In situations like these, having a bookkeeper handle your day to day financial data
One of the most recurring themes I have noticed as a bookkeeper is most business owners have not reconciled their bank or credit card accounts. I think this is due to the fact that some of them may not understand how powerful a simple task like this is AND how much information it can tell them about their businesses. Here are 7 reasons why this task is so crucial to the overall financial health of your business. Errors – Performing a reconciliation of your bank accounts every month can help locate errors made by you or the bank. Not to mention can catch illicit transfers performed within your accounts. This is especially essential if you have set up bank feeds in your accounting software. Prevention – Unauthorized charges by the bank, check fraud, and other serious issues can be identified AND corrected. Miscellaneous charges and large, out of the ordinary purchases are some prime examples. Powerful Decision Making – When you know where your money is coming from and where it is going, when you know all transactions are accurate and that balances are correct, you as the owner can make some very powerful decisions in regards to your company.