How Do I Keep My Bookkeeping Straight?
There is a dark cloud that hangs over the heads of small business owners that takes form in boxes of receipts, lengthy email chains, invoices unpaid, and unreturned emails from tax professionals. The disillusioning and disorienting nature of bookkeeping is a great enough threat to turn even the most organized entrepreneur into a nine-to-fiver.
Grass is greener
If there ever was a grass-is-greener professional lifestyle, it might be that of a freelancer. Work from home? Every darn day. Want to share a work space? There’s one on practically every city block. Take a long weekend? Who’s going to stop you? Make your own hours, create your own policy, hire whomever you want — the perks are practically unbound. Yet, always lurking in the shadows of the ultimate professional freedom is the fact that there is no “Jerry” in Accounting, reporting your income to the IRS and quietly filing your tax papers for you with a smile and a nod over his coffee mug labelled non-ironically, “Jerry From Accounting”. That Jerry is so real to an entrepreneur, it hurts from longing.
As a small business owner, I have struggled my way up the learning curve ladder that is bookkeeping for my business. What started as a manilla envelope full of odd receipts to be read aloud at my yearly CPA meeting has turned into a smooth and easy process not unlike skipping through a field of poppies — if not equally coma-inducing.
It starts with a small team
Think very small. If you are confident in your organizational skills and are adept at using a program such as Quickbooks or other accounting applications and your LLC is a sole proprietorship, you may be able to run solo until your business outgrows your ability to keep up with your own bookkeeping. Give yourself a pat on the back! This, however, is not for me.
A Certified Personal Accountant (CPA) will take organized information like total income earned via 1099 (tax form), miscellaneous income earned, gas mileage totals, and other business expenses — aka deductions or write-offs — (to be differentiated from personal expenses like gym memberships and phone calls to psychic mediums which cannot be written off; believe me, I’ve tried), and report this information to the IRS on your behalf. A reputable CPA will pay for itself (generally between $150–350 per account depending on the level of service) by finding legal loopholes in the IRS’ system for deductions.
In order to take full advantage of a CPA’s services, you have to be organized.
A note worth making at this juncture: there are generally two types of bookkeeping styles: Quickbooks, which is also not for me, and Spreadsheets (specifically, in my experience, Google Spreadsheets, so that documents can be easily shared if you’re working with a team larger than just a CPA). I prefer the latter for its simplicity and cost-effectiveness.
1. Deductions
A manilla envelope full of receipts is a fine start, but a CPA may charge you additional work hours to sort through them. Best to filter them on your own time using Quickbooks or a spreadsheet service using this handy guide. Show up to your CPA meeting with this level of organization, and you will get a *bronze star*!
2. Income Earned
To keep track of my monthly income, I keep a Google Spreadsheet open and simply enter the totals earned, the date of the receipt of revenue and by whom I was paid. This simple task will make your year-end gross income easy to calculate. Some employers will ask for a W9 before contracting your services — especially if your estimated income will exceed $600 — and that employer will submit electronically or by mail a 1099 at the end of the year, which will provide an accurate year-end total income received from that employer. Still, you should keep a separate tab on your income and subtract the 1099 amount from your tracking to report to your CPA. Any miscellaneous income will fall through the cracks and be forgotten forever (or until you are audited by the IRS), so this step in organization is critical to keep clean bookkeeping records. Show up to your CPA meeting with accurate year-end income totals and you will get a *silver star*!
3. Monthly Profit and Loss Statements
If you are engaged in business under a LLC (Limited Liability Corporation) larger than a sole proprietorship, you will be required to submit monthly profit and loss (P/L) statements. I just set mine up yesterday for my band using Google Spreadsheets. I started by downloading our monthly bank account statements and copying them over to the Google spreadsheet and separating an expenses (any number lower than $0) from income (any number greater than $0). I created two tabs for each month: Expenses and Income. In a separate tab, I set up a monthly P/L that deducts the expenses from income. A year-end balance sheet can be created by reconciling the total balance at the beginning of the year with the total balance at the end of the year. Keep this document running, and you’ll get a *gold star* at your CPA meeting. Good job!
Bookkeeping can be as easy as it makes sense for you. Try not to overthink it, and put in place a few reminders to stay on top of it, and you should be good to go!
If you have a different method, or comments on how I keep track of my bookkeeping, please leave a message in the comment section!
Andrew Vait is a singer/songwriter, multi-instrumentalist and educator. He currently lives in Seattle, WA and performs and records with his pop band, SISTERS
