One of the most important parts of successfully running any business is keeping close tabs on your finances, and understanding exactly what is going on. This is almost impossible without having some type of accounting software. Currently, the accounting software I use for all of my businesses is QuickBooks, and it is the simplest software that I have tried. There are desktop versions of QuickBooks, however, I use the online version because it is more affordable, I can access it from my phone, tablet, or computer, and it is extremely user friendly.
As a small business owner, keeping track of your income and expenses is so important. You need to know if you are making a profit or not, and if not, you need to know where exactly all of your money is going. Instead of having to manually enter all of my expenses and income after I make a purchase or receive a payment, QuickBooks pulls the transactions directly in from my bank accounts. You will still need to keep your receipts for your records, but using a device such as the NeatDesk Desktop Scanner and Digital Filing System will help keep them organized. The way QuickBooks breaks your expenses out allows you to see where exactly your money is going. This information will be necessary for when you file your taxes at the end of the year.
When you make any purchase for your business, it is important to categorize it correctly for tax and management purposes. For example, pens, ink, and paper would all be considered Office Supplies, while a payment for a radio advertisement would be considered an Advertising expense. Some of the most common expense categories are rent, utilities, fuel, payroll, office supplies, and advertising. In QuickBooks, categorizing your expenses is a very simple process. Once you make the payment with your credit or debit card, the transaction will automatically show up in QuickBooks under the bank account used for the purchase. At this point, you will select which Expense Account to assign to it. You can use the preexisting expense accounts in QuickBooks, or you can create custom categories specifically for your company.
As is the case with most small business owners, I occasionally buy something personal with my business debit card, and I also occasionally buy something for my business with my personal debit card. You will need to keep track of both of these types of transactions. If you buy something for personal use using a business account, it is considered an Owner Distribution. If you buy something for the business using a personal account, it is considered an Owner Contribution. Both of these are considered Equity accounts, and can be tracked in QuickBooks, or whatever accounting software you decide to use. Neither of these transactions will be considered an expense, so they will not show up on your Profit & Loss report, but will instead be recorded on the Balance Sheet.
To keep track of how your business is doing financially, you need to understand some of the most basic reports. The first report that will be your new best friend is the Profit & Loss Report, also referred to as the P&L or Income Statement. This will list all of your income, versus all of your expenses broken out by category, and is used to show your net income or loss, aka how profitable your business is. The next report I would recommend is the Balance Sheet. This will list all of your assets, equity, and liabilities, and is used to show the overall condition of your company.
This side of running a small business can sound very confusing and intimidating, but once you get into it and start actually doing it, it becomes fairly simple. If you do have any questions please let me know, and I will be more than happy to help!