So you’ve started a business. And holy shit, you’re actually making some money! You get on with your bad self, girl! The one possible downside however, is that now you have to start, you know, keeping track of all that mad cash you're bringing in. Organizing your business records, keeping your receipts, and *shudder* filing a tax return - crazy, right?
But never fear- I’ll give you all the basics you need to know right here. A love of order and office supplies is a plus, but certainly not a requirement.
Separate Your Business and Personal Finances
Repeat after me, kids: “My personal and business finances are separate. My personal and business finances are separate. My personal and business finances are separate.” That is your new mantra – hold it near and dear to your heart. It’s pretty much the First Commandment of record keeping.
Separate and distinct personal and business accounts are essential. Just do it. You’ll thank me later.
You don’t need to make a big production out of this, don’t worry! You don’t need an “official” business checking account, or a credit card in your business’s name. In fact, if your business is young, it will be pretty near impossible to get a credit card in your business’s name. Don’t worry about it. Just open a new personal checking account where you already do your banking and transfer some “seed” money into it. All business transactions will now take place from this checking account, not your personal one.
The same idea goes for a credit card. Simply apply for a new credit card under your own name. CreditCards.com is a good place to look for cards with no fees and maximum rewards, whether you are looking for travel miles, points, or cash back.
And don’t forget about PayPal. If you’re accepting payments or making business purchases through PayPal (or another credit card processor), open an account just for your business. You don’t need the transaction for your eBay purchase of new shoes next to the invoice for your latest client.
Track Your Income and Expenses
Otherwise known as: bookkeeping! Learn to love it, kids – whether you do it yourself or outsource it to a bookkeeper, keeping accurate records is essential. How else will you know when you’ve hit your target sales goals or cross that six figure line?
Bookkeeping, especially if you have a relatively simple service based business (ex: coaching, consulting, etc), doesn't have to be complicated or scary. User friendly, almost dummy-proof software is available for little or no cost. They all import transactions directly from your bank, credit card, and PayPal. Some will even sync with your invoicing and time tracking software.
Here’s a list of my favorite bookkeeping software:
- WaveApps: Free!
- OutRight: Super user-friendly
- QuickBooks: Both desktop and cloud versions available. Might be overkill, but consider it if your business requires you to keep an inventory of physical products
Expenses: Keep Your Receipts
Here’s a pretty good rule of thumb when it comes to business expenses: if you don’t have a receipt for it, it didn’t happen. I know it sounds harsh, but it’s true. If you can’t prove to the IRS that you actually shelled out cash for an expense you claimed on your tax return, well, you’re pretty much SOL. So, as annoying as it is, you've gotta keep all those little Starbucks receipts from when you had coffee with a client, and all the parking garage receipts from when you left your car at the airport for a business trip. Here’s a few hints to make this a bit easier for yourself come tax time:
- Paper receipts: write a keyword at the top for what the purchase or expense was for. If you took a client out for dinner, write their name on the receipt. If you bought printer paper at Walmart, write “Office supplies” on the receipt. Then, toss the receipt in a file folder (more details on the file folders in a minute!), and you’re good to go!
- Virtual receipts (AKA: order confirmations, electronic bank statements, etc): Save a PDF of the confirmation in your “Bookkeeping” file folder on your computer. Back that sucker up. Back it up again.
- Car Mileage: Here’s a great tip, from me to you: if you use your car for business purposes (driving to see clients, to conferences, to pick up supplies, etc), keep track of that mileage – it’s all deductible! The easiest way to do this is to throw a pocket calendar in your glove compartment, and whenever you drive somewhere for business, make a note of that mileage in your calendar. When tax time comes, voila – a perfect record of your business mileage for the year!
Organizing and Filing
Ahh, this is my favorite part! I’m not kidding. I love setting up file folders with lovely typed labels, and putting everything in order. It’s a little thing I can control in this crazy world.
Don’t worry – I’m not going to make this complicated or expensive. All you need are 12 file folders. I personally like pretty colored ones, but plain manila ones are acceptable as well. Here’s what you do:
- Label the 12 file folders with the months of the year: Jan, Feb, etc. Create the same folders virtually on your computer nested in a bookkeeping folder.
- Put anything bookkeeping or tax related you get during any given month into that month’s folder. Things that would go in the folders would be: receipts (that you’ve written a keyword on, as suggested above, of course!), statements from credit cards, checking accounts, cell phones, etc, and deposit slips (if you have an old fashioned business where people pay you in cash or checks)
- At the end of the year, after you’ve filed your taxes, bundle all the folders up into an Archive file or box, and tuck them away. Do NOT destroy your records yet!
- Buy 12 more folders, label with the months of the year. Lather, rinse, repeat.
- I repeat: do NOT destroy last year’s records! In some circumstances, the IRS has up to 7 years to go back and audit you and your business, so keep those archive boxes for a full 7 years! After the 7 years has passed, you are free to shred, burn, or compost your records.
And there it is! See – I told you record keeping wasn’t so bad. Keep your business and personal finances separate, invest in some easy-to-use bookkeeping software, keep your receipts, and have a simple organization system. That’s all you need. Now step away from the file folders and get on with rocking your biz!
Do you have a system for handling your business finances?
P.S. Want to show others how easy business record keeping can be? Tell them on Twitter!