Best Bookkeeping for a Small Business
How to Start in an Online Business
Phase 2 – Step 3
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Now that your Home Office is all set up and you are ready to work, let’s begin. In this Step I will begin teaching you the Best Bookkeeping for a Small Business. Sure, you could merely hire an Accountant to do this for you, who could also monitor and keep up with all of your day-to-day Bookkeeping. Perhaps later on down the road, once you become extremely successful, this might become an option for you, but I am a firm believer, that in order for anyone to be a successful boss, that person should know how to perform all the tasks that they may be delegating to others.
Anyone ever have a boss that had no clue on how to do what they were asking you to do, and had unreasonable expectations? I am sure that we all have at some point in our lives. If you want your future employees to really respect you, you should be able to perform all of the tasks that you are asking them to do.
Even if, one day in the future, you decide that you need to hire a Bookkeeper or an Accountant to keep track of all the day-to-day transactions that you just no longer have time for, you are going to want to periodically review that person’s work to make sure that they are doing it correctly, not to mention, to make sure that they are not ripping you off. Money Management is a very important part of any business, and I personally, prefer to do that part myself.
Delegate whatever tasks in your business that you need to, but I caution everyone, do not trust your Money Management to anyone else. Do that part of the business, yourself, or if you must delegate it, then monitor it closely.
Before you continue on here, I encourage you to see my Support Post: Bookkeeping Basics for a Small Business
That Post will give you some information on the various Bookkeeping Systems that are available for you to use, which may help you in your decision concerning your choice of Accounting Systems, discussed at the end of this training. After your review of that Post, return here and continue reading.
OK. Let’s get started with the Set Up of Your Business Bookkeeping.
Getting Ready to Set Up Your Bookkeeping
Your Financial Books are a place for you to review and monitor your business’s Income and Expenses. They are also used to figure out your Federal, State, and Local Income Taxes. By keeping your Books organized, you can take control of your Finances and make smart decisions. You need to know how to set up your Books for your Online Affiliate Marketing Business.
Recording business transactions does not have to be a difficult task. The more you prepare your Accounting System, the easier Record Keeping will be. Before your new business starts to make transactions, there is a setup process that you should follow to set up the Bookkeeping for your Online Affiliate Marketing Business.
There are two areas of setup:
- Your Hard Copy Files
- Your Spreadsheet Files
Setting Up Physical Files for Your Hard Copies
If you do not have a File Cabinet with Dividers and File Folders, I would strongly suggest that you purchase those. You will need a place to store all of your organized Receipts and other Hard Copy information, such as, Income Statements, Bank Statements, Tax Records, etc. You can purchase everything that you need at your local Office Supply Store or online.
Hard Copies are very important to have on file, in case you need to return a purchased item because it is defective, or in case, you would ever get audited down the road. Most Auditors do not enjoy being handed a box of disorganized receipts. They will look more favorably on someone who is meticulously organized, rather than someone who is not. It speaks to your integrity in running your business.
If you do not have money to purchase a File Cabinet with Dividers and File Folders right now, you can temporarily keep your Receipts in Envelopes and file them in a box. Mark each Envelope with the month, year, and type of contents, and keep appropriate Receipts in the proper Envelopes . When you have the funds to purchase the File Cabinet setup, you will easily be able to transfer these to the proper File Folders that you will set up.
If you do purchase a File Cabinet, you should optimally also have the following:
- Dividers labeled by the alphabet.
- Individual Manila File Folders to hold the stored information.
- 24 or more 5” x 7” Manila Envelopes.
- Either a Label Maker or a sheet of proportionately sized stickers that you can write on and place on each of your Manila File Folders and Envelopes to mark what each is. In either case, you will be able to easy change the name on the File Folder should that ever become necessary.
You must first understand how your Spreadsheets will record your information, so that you can set up your Hard Copy Files in a fashion that will allow you to easily find and retrieve any information that you might be searching for. Your Spreadsheets will be composed of specific information for a given area, with each entry being listed by date of initial application. Therefore, it will be best if you setup your Hard Copy Files to match that. Therefore, while you might file all of your Expenses under ‘E’, you will also, break those down into monthly files for each year. Then, at the end of the year, you will purge your files of all of the information pertaining to that year, and file it in a storage box, where it will be kept for at least 7 years.
Example: Let’s say that you purchased an electric pencil sharpener in July 2017, which failed in September of that year. You wish to return it for a replacement. You will need your receipt.
First, check your Spreadsheet to confirm the date of purchase. Then, when confirmed, you would go into your Hard Copy Files and locate the ‘2017’ File, look under ‘E’ and find the ‘Expenses’ Folder, then, look for the ‘July’ Envelope, and find the specific receipt needed.
You might think that a different filing system might be better. You may think that if you filed each of your Expense Receipts under the alpha character that applies to each, that it would make things easier to locate, like, filing a Receipt for your ‘computer’ under ‘C’, or for your ‘electric pencil sharpener’ under ‘E’ (or would you file it under ‘P’ for ‘pencil’?).
One thing to keep in mind, is that you will be purging your Files yearly, so that means that all the Expenses that you had in 2017 will need to be removed from your Hard Copy Files at the end of that year, and stored in a File Box. It will be easier just to go to ‘E’ and remove all of that year’s Expenses, rather than to go thru all 26 letters of the alphabet in your Files to collect all the Receipts for that year’s Expenses. However, the choice is obviously yours.
Setting up your Books will require you to make several Spreadsheets. If you have never worked with Spreadsheets before, this can be a little intimidating. You can use an Accounting Software Program like: QuickBooks by Intuit, Inc. to make your setup and usage much easier, (if you are so inclined and have the funds to dish out), but I am going to show you how to set your Books up by hand first. If you choose to use a Software Program down the road, you will simply need to Copy & Paste your information from your original Spreadsheets into that program.
Since there are a variety of different programs that you could use to create a Spreadsheet, and it would be impossible for me to explain each one in detail here, I will simply teach you the tasks that you need to perform, and it will be up to you to figure out how to use the specific Spreadsheet Program that you have chosen. If you prefer, you could go down to your local office supply store and purchase Spreadsheet Books that you can create by hand, instead of creating your Spreadsheets on the computer. It is entirely up to you.
So, let’s begin.
Setting Up Your Books
Your Books will be set up into two main areas:
- Cash In (Income)
- Cash Out (Expenses)
Your Cash In portion of your Books will include two Spreadsheets:
- Income Spreadsheet – This is where you will keep track of the Income that you will receive.
- Retained Earnings Spreadsheet – This is where you keep track of the amount of money your business holds in an account for future expenses or disbursements.
Your Cash Out portion of your Books will include six Spreadsheets:
- Business Startup Expenses – This is where you will record all of the Expenses related to the Startup of your business.
- Fixed Assets & Depreciation – This is where you will record all of your Assets as well as keep track of your Depreciation deductions.
- Expenses Spreadsheet – This is where you will record all of your day to day Expenses incurred.
- Home Office Operating Expenses – This is where you will record all of the Expenses related to maintaining your Home Office.
- Vehicles Expenses – This is where you will record all of the Expenses related to any Vehicles used in your business.
- Accounts Payable Spreadsheet – This is where you will keep track of payments for any Expenses which you purchased on time or with credit.
In addition to your Books, you will be creating Spreadsheet Templates and keeping them in a separate Folder on your computer in order for you to use each year to easily setup your Books for each new year. You will simply Copy each needed Template and Paste it into a new Spreadsheet, change a portion of the Title, add the current Year, and you will be ready to go.
Create Folders & Sub-Folders
Before you begin setting up your Spreadsheets it is a good idea to know where you will put them when each one is completed. Organization is one of the main keys to success in any business, so let’s begin by setting up some Folders & Sub-Folders for your future Spreadsheets.
Your Main Folder which will contain everything concerning your business should be named after your business. Create and name your Main Folder your business name (or domain name – without the .com).
Then, create the following Sub-Folders, which will reside in your Main Folder: My Bookkeeping
Create Sub-Folders in your ‘My Bookkeeping’ Main Folder as follows:
- Spreadsheet Templates – All of your Spreadsheet Templates will be kept in this Folder.
- Current Year (such as: 2018) – All of your current year’s Bookkeeping will reside here. Additional Sub-Folders will be created at the beginning of each year, and named for the new year.
At the end of every year, you should also make a Hard Copy of each completed Spreadsheet pertaining to that year, and file it in your Hard Copy File in under ‘B’ in a Folder marked: Bookkeeping. This will make doing your Income Taxes easier.
That’s good enough for now. Other Sub-Folders will be created later to store other things.
A Little About Formatting
In order to maintain consistency throughout your business Books, you will need to use certain Formatting options consistently in all of your Spreadsheets in order to have uniformity. Some of the choices you will make will be concerning:
- Font Type
- Font Size
- Bold or not
- Alignment (center, left, or right)
- Cell Shading
- Column Widths
- Spacing (blank lines)
The choices that you make are strictly up to you. The important thing is that you stay consistent throughout all of your Spreadsheets wherever you can. Some things will change, like: Cell Shading and Column Widths, which may be necessary for certain parts in particular Spreadsheets, but other things like: Font Style, Font Sizes, and your use of Bolding should usually remain consistent.
I will show you how I have mine setup, and you can make any changes that you desire based on your own personal choices. Before you can begin creating your Books and Formatting your Spreadsheets, you will need to do two things:
- Decide on which Accounting System you intend to use (there are two to choose from).
- Review my next Post: What is the Home Office Tax Deduction? – Phase 2 – Step 4.
The first is necessary in order to set up your Books correctly. The second is an information Post to familiarize you with why you will be doing what you will be performing, and the many benefits of operating a business out of your home.
So review the information below pertaining to your first task, make your decision, and then go on to my next Post: What is the Home Office Tax Deduction? – Phase 2 – Step 4. When you have accomplished those two tasks, you will continue on to Formatting your Spreadsheets and getting your Books all set up for your business.
Before actually Formatting your Spreadsheets you need to decide on which Accounting System you intend to use for your business. Your choices are:
- Cash System
A Cash-Based Accounting System records transactions at the time the cash was paid or received. This system is easier to use.
- Accrual System
An Accrual-Based Accounting System records transactions at the time they occur, whether the payment is made now or in the future. This system is generally used for businesses that carry balances for their Accounts Receivables, who may pay within 30 days, 60 days, or whenever, yet the business owner prefers to track monthly sales when they occurred, rather than to track when the payments were actually made. It is a more difficult system to use.
For an Online Affiliate Marketing Business, it is my recommendation to use the Cash System. It is a simpler method, and this type of business will lend itself better to using this system. Your Affiliate Programs will usually pay you in full sometime during the following month after your responsible sales. Using this system, will merely require you to record the transaction on the day that they occur, and money was received. Even if some of your Expenses will be paid for using credit, you can still use the Cash System. You simply record your payments on the day that they are made.
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So, make your decision on which Accounting System you intend to use, and then go on to my next Post: What is the Home Office Tax Deduction? – Phase 2 – Step 4.