The First 3 Steps To Setting Up Your Bookkeeping System
Congratulations! You've decided to take on the task of bookkeeping for your business. Don't be afraid. Bookkeeping doesn't have to be complicated. If you have a great system in place when you get started, things will be a lot easier. If you have started and realize you may not have done some things right, no worries, it can be fixed.
One of the most important things about bookkeeping is for you to capture all of the financial activity within your business. To make this process simpler select a cloud-based accounting software program, connect all of your business accounts, and choose the right chart of accounts.
1. Select Accounting Software Program
It is important that you develop a system for handling your "books" so that you can truly understand how your business is performing. There are so many software programs available that eases the bookkeeping process. There's is no need to use a spreadsheet to keep track of your income and expenses these days. Technology has given us the opportunity to simplify this process. Our personal preference is Xero accounting software.
To find out why choosing Xero makes sense, click here.
2. Connect All Of Your Business Accounts
Connect all of your business accounts to your software. Be sure to include all bank accounts, credit cards, lines of credit, PayPal accounts, etc. that you use for your business. Normally, most software programs will have the capability for you to have automatic bank feeds where the daily transactions automatically feed into your system. At that point, the only thing that you will have to do is classify the transactions so that you will know what revenue streams are making you money, where you are spending money, and how much your business is worth.
3. Choose The Right Chart of Accounts
It is important that you choose the right Chart of Accounts that best describes the activities occurring within your business. A Chart of Accounts is a complete listing of every account you use in your accounting system.
If done correctly, when you review your financial reports you should be able to make more informed financial decisions about your business. You will be able to answer questions such as which services brought in the most revenue, if there are specific categories of expenses that you are spending too much money on, if your revenue and expenses have increased or decreased month to month, etc.
Scenario:
Imagine if you sold courses, memberships and consulting services. Sales are sales right? So, you decide to classify all income is sales. Sales have been increasing and you would like to know which revenue is bringing in the most money. When you look at your financial reports you see that "Sales" have increase $3000 from last month. Did you sell more courses, more memberships, or increase the amount of consulting services you provided? This will be hard to determine using the generic category "Sales".
Now, let's say you set up multiple revenue categories in your Chart of Accounts. You know that you offer three different services, so you created an account for Course Sales, Membership Revenue, and Consulting Services. Each time you earned money your recorded the revenue accordingly. When your reviewed your financial reports you saw that Course Sales actually decreased this month, but Membership Revenue increased.
You can now look at why theses changes occurred. Is it because last month you created a new course? Did the individuals you sold courses to last month subscribe to your membership group this month? From this example you can see the importance of a detailed Chart of Accounts.
Next Step:
We have taken the time to create a sample Chart of Accounts for you. Download the PDF and review the accounts listed. See which ones pertain to your business activities. We've even made things simpler for you by creating an additional file that you can upload directly into Xero if you feel this Chart of Accounts is a good fit for your business.
To download this Chart of Accounts, click here.
