DIY Bookkeeping Lesson No. 1
As much as I enjoy working for my clients and getting new clients I understand that not every small business needs a bookkeeper. Some businesses are small enough that the owners cannot justify paying someone else to do the small amount of record-keeping that they can do themselves.
If you are one of those people, rest assured that there is a way you can do the bookkeeping that doesn’t have to be time-consuming or frustrating. The important thing that is required in bookkeeping is simply keeping good records. You could almost think of it as recordkeeping instead of bookkeeping.
The problem is that for some people it can be overwhelming because they let a lot of time go by before actually getting around to it. And as with anything, when you procrastinate, things will pile up and it becomes much harder. So, I recommend coming up with a system that you can do at least once a month without fail. Because this article assumes that your business is not really big it also assumes that you will not have more than 25 to 50 expense receipts from your business each month.
A Simple System
To simplify the definition of bookkeeping is to say that it is mainly about recording the money that your business makes and how much your business spent. So for example if you had a year’s worth of bank statements in front of you and you added up the income from the deposits from every one of those bank statements you would have your total income (revenue). If you added all of the money spent, you would have your total expenses.
Of course it isn’t quite as simple when it comes to the money spent because this is where you need to separate things into different expense categories. But you don’t need to be too detailed. You can have simple classifications such as advertising, auto, meals, office etc.
If I were to recommend something extremely simple I would suggest taking a piece of paper (a spreadsheet or word document will work too) and leaving a space for the name of the month at the top. Then I would have a row below that called “Income”. Then one by one under income I would list the different expense categories that my business has.
Costs of Creating or Buying
If you have a business where you do crafts or make things to sell, the items you purchase that actually make up the finished product are called costs of goods sold. If you buy items for resale, these are also called costs of goods sold. If this is the case with your business, you will need to have a separate row called “Costs of Good Sold” on your bookkeeping sheet. These items are separate from expenses. I would put this in the row below income.
Next under income and costs I would create rows for each of my expense categories. So I would then write “Advertising” and then go down the next line and write “Auto” and then “Office” and so on until I had listed all of the categories of expenses that my business has. At the bottom of the sheet I would have a line for the total of all expenses (not including Costs of Goods Sold) on a separate line call “Total Expenses”.
At this point you could make 13 copies of this document so that you have one for each month of the year. Then after the end of each month you can add up all of your income and write it on the income line. Do the same for the Costs of Goods Sold line if you have one. And then you can add up all the expenses from your receipts separating them out into the different categories that you’ve created. The last copy would would be for the totals of all 12 months of the year combined to be done in January of the following year after completing Decembers numbers.
Each month, after you’ve totaled everything and you’re done with that month’s sheet, put it in an envelope along with all of your receipts and the bank statement and write the month and year on the envelope. If for some reason you are ever audited and are required to provide your records, all you would have to do is get the envelopes for whichever months the audit is for. You will probably be under enough stress emotionally as it is, so at least this part would be easy since you’ve already done the work. And because you’ve taken the time to do all of this every month, you can be pretty confident that your records are accurate.
This is a simplified example of how you can do your own bookkeeping. As you go, you might come up with a different system that works for you. Hopefully you should only have to spend 30 minutes to an hour each month doing this. Because you enjoy what you do and have a lot to do, you don’t want to spend too much time on your bookkeeping. Hopefully by simplifying the definition and the process here, you won’t feel so much pressure when doing it and are able to concentrate on the task itself.
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