I’m going to outline for you the pathetic money system I used to have in place for my small business (I mean, it’s great that I had one…but wait and see what I mean).
I had an excel sheet, and about 7 columns of the different revenue streams for my blog, Frugal Confessions. Each month, I would go to my PayPal account, search for that month’s range of transactions, get out my calculator, and add up each type of income individually. Then, I’d do the same thing for expenses. These amounts automatically calculated together within excel, so I thought that was pretty cool. Plus I had a nice pie graph already set up so that I could see the growth of different streams in a very visual way.
I estimate this took me about 3 hours each month to calculate. It’s not that I didn’t enjoy adding things up and seeing how the month went…but it was time-consuming, and I knew there had to be something easier and more accurate (especially when I had some income coming in through checks in the mail).
So in December of last year I decided I would do whatever it took to set up a money system for my business. And it’s been working great! So great, in fact, that I want to share it with you in case you have a small business as well.
Open up a Formal Business
My first step to getting everything in order was to legally separate my finances from my business’ finance. Previously I paid taxes as a sole proprietor, and used my own social security number. So I had to get a business tax ID from the IRS, incorporate as an LLC (Limited Liability Company), and file with the State of Texas. There was also a search on the Secretary of State website to make sure that my business name was not taken. Thankfully, no one else has incorporated Frugal Confessions!
Open up a Business Checking and Savings Account
Now that I had my business formally set up, I could open up a business checking and savings account. This also included getting a business debit card so that I could now make purchases separate from our own purchases (read: much easier come tax season). You can also use a Business Credit Card to earn cash back on your business purchases.
I also had to stop using my business PayPal account as an account for personal spending as well. So I upgraded it to a business premier account, and opened a separate PayPal account for personal spending (if you don’t want to do this, read on, as there is a solution through the free software).
Connect My Bank Accounts
Next I went through and connected my business PayPal account to my business checking account so that I could easily transfer money. I also connected my business checking account with our personal checking account so that I could formally take out income and track it.
Connect Everything to a Bookkeeping System
And finally, the step that is most exciting to me, is I opened up a free GoDaddy Bookkeeping account. To be honest, I looked into non-free bookkeeping software, like Quickbooks, which I was totally ready to pay for in order to get everything set up more efficiently. However, I didn’t see a need for it after I stumbled upon this gem!
Update: It looks like they eliminated the free option for new users. If you have already signed up you get to keep using it for free. New users will need to pay a monthly fee. Here’s more on the GoDaddy Paid version FAQ.
I connected each of my business accounts to this bookkeeping system – my business Paypal, business checking, and business savings – and allowed the system to start work. It brought in each of my Paypal transactions from the previous year and categorized income versus spending for me. Of course, not every category was correct. But I was then able to change categories as needed (as well as add any type of categories I wanted). I could also automatically make one type of vendor pop up as a particular category each and every time they paid me. Pretty awesome!
What I was even more impressed with was the ability to immediately see profits and losses any time that I wanted it…without me having to do anything. It’s so exciting, in fact, that several times a week I just click on my link in “favorites” and smile as I look upon new sale alerts, and categorize anything that needs it (typically one thing every other week or so will be in a category I don’t want).
Since doing all of this, I’ve had to file an annual tax report with the State of Texas (where I incorporated), which was no big deal. And everything else has been an absolute breeze! Seriously, setting up this system has been one of the best business decisions I’ve ever made.
Do you have a small business bookkeeping system that works automatically? If not, what is holding you back from doing this?
More Self Employed Topics
- How to Calculate Self Employment Tax
- New Social Security 2015 Wage Base
- What Happens If You Don’t Make Estimated Tax Payments?
- Tax Deductions for the Self Employed
- What is the Home Office Tax Deduction?
- What is the Self Employed Health Insurance Deduction?
- Tips for Filing Your Taxes with Self Employment Income