This week’s blog post is something that I’ve been wanting to cover for a while, as I know it’s a HUGE weight on a lot of entrepreneur’s minds
What IS Accounting??
I’m not talking about the type of accounting you study at college. I mean specific, entrepreneurial accounting.
If you’re not a ‘numbers person’, just the word accounting can make you want to run and hide. Let me clear this up: You Don’t Need To Be Good At Math To Be Good At Accounting!
I never learned my skills at school; I learned in the trenches, running a restaurant, living in entrepreneurial poverty and trying to achieve my dream.
I want to talk you through (almost) everything you need to know about entrepreneurial accounting, and how to make money in your business!
What exactly does ‘Accounting’ mean?
Accounting is actually really simple: It’s how your business records, organizes and understands your financial transactions.
A financial transaction is anything that involves your business’s money:
- Deposits
- Withdrawls
- Non-cash transactions (e.g. a business credit card)
If you were to print out the statements for every single business bank account and business credit card you have, and go through the itemized list – those are your financial transactions.
Accounting is simply gathering that data, and organizing, analyzing and summarizing what it tells us.
How do I do it?
Accounting in your business is also known as bookkeeping.
I know that’s another trigger term that can make you want to run for the hills, but trust me – you need to know how to do it.
Bookkeeping is the backbone of your business finances. It’s how you record and categorize all your financial transactions. If your bookkeeping is wrong, your financial reports will be wrong and your taxes will be wrong…
The analogy I like to use for bookkeeping is organizing your closet. You start with a messy jumble of clothes, but once you’ve sorted them out, you can see exactly what items you own. How many pairs of jeans, how many dresses. You can easily see what you have an excess of, and what you need more of.
And the feeling when you see everything hanging neatly in your closet? Bliss!
That’s pretty much what bookkeeping is for your business finances.
Basic knowledge of bookkeeping and accounting is essential for your business, and my free Profit Plan tool can help you with getting your data organized. If you’ve not got your copy yet, make sure you download it now!
Let me give you a quick example:
You look at your business expenses and see you dropped $100 at Staples last month. Then you notice you also spent $200 at Office Depot.
When you categorize these together – as office supplies – you’ll see a pattern of how much you’re spending on each area of your business.
Why you NEED to do your accounting
There are two main reasons that bookkeeping and accounting are essential for a successful, profitable business:
- To figure out your taxable income (so you don’t end up paying the IRS a penny more or less than you need to)
- To make strategic decisions in your business.
If you organize and categorize all your seemingly ‘random’ spending, and notice that you spent $3000 at Staples last year – but you’ve no idea what you actually got – then you can start making strategic decisions.
Organizing your finances = Understanding your finances.
The Accounting Equation
The absolute basis of accounting in business is this:
Business Revenue – Business Expenses = Business Profit
(Don’t forget, my free Profit Plan tool will help you with the numbers here!)
Your business is taxed on its profits, so you need to make sure those figures are correct. Otherwise you could end up paying way more than you need to, or in big trouble with Uncle Sam.
I know that numbers can turn some entrepreneurs off, but I’m hoping so far in this post you’ve seen that accounting just means organizing. If you can organize your closet, you can organize your finances!
The Two Ways to Tackle Your Accounting
By now, you should understand the importance of accounting in your small business. Let’s take a look at how to do it.
The first option is to use accounting software. I am a huge fan of QuickBooks Online for The Chic CFO business accounting, and I run through the different versions available in this blog post.
The reason I love using QuickBooks Online is because it allows you to easily import all your financial transactions and categorize them at the click of a button.
I know that learning new software might be something you don’t have time for right now, so the other option is to utilize my quick and easy Know Your Numbers Now template, which you can access here.
This template allows you to download your bank statements straight into the spreadsheet, and categorize each transaction quickly using a simple drop-down box. It really is a lifesaver if accounting is not your thing!
What Next?
I hope this post has gone a long way to showing you that accounting and bookkeeping aren’t scary. They’re not something you need to be a Math Nerd to do – or even enjoy!
I do want to make clear, though, that as your business grows, there will be more high-level accounting that needs to happen than I have shown you here. This is where you will need a tax preparer, for example.
BUT. If you’ve been diligent in keeping on top of your basic financial transactions, you’re going to make their lives a heck of a lot easier when you hand over your information. They’ll be completely ready to roll!
I want you to get into the habit of organizing your finances – of accounting – weekly. Set a date in your schedule to go through your business transactions each week. The more often you do it, the faster you’ll get at it.
Tracking your business finances gives you complete insight into what’s happening in your bank account, and your business. It makes the obvious jump off the screen at you, and leads to ‘A Ha!’ moments that pave the way for greater profits.
If you want to see the training I did on this subject, you can access the replay now on YouTube, and if you have any questions please do drop me a DM on Instagram.
You’re an entrepreneur. You don’t shy away from a challenge. If you can run a company, you can organize your finances, and I’m always here to help you!
