How to make tax time not suck: Easy bookkeeping tips
The pain of tax season
The first few years I was an entrepreneur my money management system went something like this:
Make a little money
Spend a little money
Pull money out of my business to pay myself when I needed it making sure enough was left to cover expenses
Pretty much avoid the numbers
Pay for an accounting software that I never used except for tax time
Maybe pay some estimated taxes if I remember, usually guessing and putting in a random amount
Tax time rolls around and I SCRAMBLE!
Calculate revenue for the year
Sift through receipts to categorize expenses in my accounting program
Look back at my calendar to calculate miles driven
Calculate deductions for cell phone, home office, etc.
Pull together all our personal tax stuff
Put it all into Turbotax (or hand off to a tax preparer and pray I get money back instead of having to pay it) and submit taxes just in the nick of time
Yep, that was my shameful money management and tax prep method for years. And I know that most of my entrepreneurial peers were unfortunately doing things the same way.
Tax time SUCKED. And I felt pretty crappy about money the rest of the year too.
Being a better bookkeeper
Then something awful and wonderful happened all at the same time, someone approached me about buying my business and I was woefully unprepared to let him peek behind the curtain to see my numbers for the year-to-date, because well, I hadn’t looked at them yet because tax season hadn’t hit.
But that freakout moment taught me an important lesson - to manage and organize my business, especially the books, in a way that I could be proud of and could be understood by an outsider.
I’m going to dive into the financial stuff in this article, but to get an honest look at what else I changed, read my other article, 10 Systems that will make you a Killer Business Manager.
Even though I don’t intend to sell this business like I did the last one, keeping track of things in a way that would have made it easy for anyone to understand gave me a new mindset around bookkeeping and money management making me an empowered business owner instead of an ashamed one.
Tax time is easy and I use the numbers to drive my business instead shying away from them. This allows me to celebrate when the numbers are good and figure out what to do differently when the numbers aren’t quite as good.
I’m not afraid of them anymore.
The numbers are now a tool instead of a something causing me fear, anxiety, stress, and shame.
How to start bookkeeping for your business
The first thing you have to do is make the conscious decision to be a good financial manager for your business and to own the numbers instead of letting them own you.
Say this affirmation out loud for months if you have to: I am an amazing financial manager for my business. I did this. Yes I did. Out Loud. I needed to to change my ways.
Stop saying things like: I suck at math and numbers or I’ve never managed money well and I’ve come to terms with the fact that I never will. Saying this kind of stuff is a self-fulfilling prophesy. You can’t change as long as you tell yourself you can’t.
And you will be so glad you did (especially at tax time).
If you’re not set up for bookkeeping yet, here are the five steps I recommend you do to get setup.
1. Open a business bank account
This is the simplest thing to do yet the step many entrepreneurs forgo. Just go to whatever bank you use personally and open up a separate bank account for your bank. All sole proprietors need is a social security number and ID and you’ll be able to easily move money back and forth between your personal and business accounts as you need to.
By having a business checking account and using its debit card for expenses, all of your business transactions are kept separate, so even if you ignore all advice after this, you don’t have to separate out your personal stuff to calculate your business numbers.
2. Choose your tracking method
However, even in my service business with minimal transactions, I find the couple of bucks a month fee on accounting/bookkeeping software to be more than worth it. It saves me time and will grow with me versus having to change systems when it becomes a necessity (which is when I’ll feel like I won’t have time or it’s a big pain to change things up).
I’m now a big believer in setting up good business management systems and tools from the beginning, bookkeeping tools included.
You should then set it up to automatically sync with your business bank account, pulling in all of your ingoing and outgoing money transactions.
3. Set up your chart of accounts
Don’t doze off here. This isn’t difficult, I promise.
Your chart of accounts is essentially the categories by which you will track the money you make and the money you spend.
Your accounting software has default categories, but you don’t have to use these. Delete those that are irrelevant and setup new ones that will actually be useful to you analyzing your numbers.
If you’re using a good ole’ spreadsheet you should still set up categories to track things.
Here’s a screen shot of the actual chart of accounts I use for my business. The numbers don’t matter, it just organizes them in a certain order. I like to group like things in the same number range and I leave room to add new categories.
For example, all of my marketing is categorized from 600-610. I don’t need them all right now, but I might in the future, so I started the next category, Office Expenses, at 620.
Note: You can change these at any time, so don’t worry about the numbers too much.
What is important is to be consistent in how to categorize things so you can actually compare numbers month to month and year to year.
Chart of Accounts: Revenue
Chart of accounts: Expenses
If you own physical goods, you’ll also have a Chart of Accounts for Assets (I left mine as the default). This will track your larger purchase of office furniture, electronics, or expensive machinery or tools, for example.
You may also have a Liabilities sections if you pay sales tax, for example. You’ll likely have a default category called Expense Claims and another called Drawings. I’ll explain those shortly.
4. Digitally save your receipts
I no longer keep paper receipts, I put them all in the cloud.
Most accounting software programs will have a repository for your receipts so you don’t have to keep paper versions. For example, in Xero, go into your account to find your unique Xero Receipts email address. You can email any attachment to this email address and it will save it in the cloud for you.
When I receive an invoice via email as an attachment I forward it to this address. When it’s not an attachment, I save/print the receipt as a PDF and email it.
When I get a paper receipt, I snap a photo and immediately sent it to that email. Then I can recycle the receipt.
You can also save your receipts to your computer or cloud.
5. Set up a regular bookkeeping time
Monday is my CEO Day, inspired by a woman at my coworking space. On Mondays I put a time on my calendar to do two things
Track my mileage (I use the MileIQ app so all I have to do is mark a drive as personal or business, but Excel also works)
Reconcile my money transactions in my accounting software
This second one just means that when a bank transaction gets added to my accounting software, I have to categorize the revenue or expenses so the software knows how to calculate the numbers into the proper Chart of Accounts.
Doing this weekly makes tax time a breeze because I’m always up to date.
Then after every month, I evaluate the last month’s numbers and make any necessary adjustments for the next month.
Next level bookkeeping tips
Once you’re all set-up to be to bookkeeping, you’ll want to learn next level bookkeeping including:
Setting up bank rules
What to do if you accidentally charge personal to business or vice versa
Accounting for barters
Monthly numbers analysis and planning
I’ll talk about these in next week’s article, so stay tuned!
In a nutshell: How to get set up for bookkeeping in your business
Open a business bank account (keep things separate from your personal account)
Choose your tracking method (accounting software or spreadsheet)
Set up your chart of accounts (how you’ll categorize revenue and expenses)
Digitally save your receipts (no more shoeboxes of receipts!)
Set up a regular bookkeeping time (track mileage and reconcile money transactions weekly, analyze monthly)
Set your business up for success in other ways too
If you found this helpful you should also download my free Step-by-Step Checklist to Set Your Business up for Success below. I walk you through my Foundational Five™, the essentials I believe every entrepreneur should have figured out in order to be set up to succeed.
I’m Stacy, an entrepreneur, strategist, and adventurer dedicated to helping entrepreneurs figure shit out and build kick-ass businesses.
You are meant to do important and amazing things in this world and I’m here to help.
MY AFFILIATE PROMISE
Occasionally you’ll see links to resources and products in my articles. Some of these are affiliate links, but I only recommend things I have personally used and highly recommend.
A Note About Financial Advice
Please note that I am not a professional tax preparer, accountant, or bookkeeper. I am an entrepreneur and business owner sharing what I’ve learned about managing the finances for my businesses. You are still responsible for ensuring you are properly managing your business’s finances and complying with tax laws. This article is for informational purposes only and is not intended to replace the need for a financial professional or to provide official accounting or tax advice.
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