Joshua J Sheats, MSFS, CFP, CLU, ChFC, CASL, CAP, RHU, REBC is a financial planner who teaches people how to live a rich life now while building a plan for financial freedom in 10 years or less. He mixes creative approaches to lifestyle design, deep-dive financial planning techniques, and hard-core … read more
146-Intro to Business Bookkeeping Systems: Interview with Ryan Marquez CPA, MSAT
Good data is incredibly important to making good financial decisions. If you don't know where you are or where you've been, it's hard to know if you're on track and making measurable progress towards your goals.
Today I've invited Ryan Marquez CPA, MSAT on the show to give an introductory overview. Ryan is an instructor in the Masters of Taxation program at Boise State University. He also runs a bookkeeping and tax business.
Enjoy this introduction to business bookkeeping systems!
Change Your Mind Set on Bookkeeping and Accounting
Accounting is the Language of Business
Don’t need an accounting degree or CPA designation
However, should try to understand basic concepts.
Bookkeeping = getting accounting information organized so that you can start to make better decisions about your business.
Some information you can get out of good bookkeeping is:
Which areas of my business make the most money?
Getting a high level picture of expenses so you can analyze and see where costs can be cut.
Accounting Needs to Be Simple
If you follow one rule… accounting needs to be SIMPLE.
Complicated provides little value.
Large spreadsheet hard to process and takes time.
Complicated has less likelihood of getting done.
Entrepreneurs want to be out running their business, not sitting around doing bookkeeping and analyzing reports.
Simple system = less time doing and analyzing numbers.
Source of Funds
Open Business Checking Account & Credit Card
Only run business expenses through this account AND run ALL business expenses through this account.
Put business in this account and personal in another account.
DO NOT mix the two.
The reason you want to do this…
Everything is in one place and electronic.
Less likely to lose deductions.
Everything will be on statements. One can go down and categorize.
Avoids having a box of receipts that you have to sort through, figure out what is business vs. what is not, try to make sure nothing is double counted, etc…
How to get a business account
Go to a bank and open a business checking account and credit card (debit cards are fine… the point is an electronic payment method that will show up on a statement)
Will likely need two things:
EIN from IRS. Can do online. Will get letter by paper / electronic.
SOS documentation. In Idaho, just fill out a one page form. The SOS will stamp and mail back.
I know a lot of people like to use cash. However, I like to recommend not using it for business purposes.
The reason I recommend not using cash is.
Easy to lose track of.
Receipt could get lost, accidentally thrown away.
Pay with wrong source of “funds” or “cash”.
Main reason is the transaction is never recorded at all.
Want an accurate picture of your business.
Lose tax deductions.
Gets more important if you have multiple businesses.
Take what I just mentioned, and multiply it by 2 or 3 times and that’s how complicated it can be.
Tough to remember which business it was for.
Cash adds complexity to the accounting system.
Doesn’t sound too complex, but it’s just one more thing you have to do / remember.
When you’re trying to rack your brain to figure out what was paid for… it can get complex, but most importantly it can become frustrating.
You’re most likely not going to find cash on a bank statement, which makes it harder.
Recording the Transaction
Use Accounting Software Such As QuickBooks / FreshBooks
You want to do this because…
Saves you time.
Mainstream accounting software is made for non-accountants to be able to follow and use the software.
Use App or Other 'On the Go' Software
Easy because you can pull up your phone and categorize transactions on the go.
I’ve found people that do this almost feel like they’re not
Keep A Balance Sheet
The balance sheet is important because in business you're always going to have people that owe you money or people that you owe money to. In addition, you could have sales tax, payroll tax, deposits on hand, etc… that is money you have in your bank account but you'll have to pay to someone else at a later date.
A simple excel spreadsheet or even something like Mint that tracks your income and expenses from your bank account won't be able to track this for you
For example, if you're thinking about taking money out of the business or getting ready to make a large investment in a piece of equipment or something, you want to make sure that the money is available and that you don't need it to pay sales tax next month or something like that.
Some things a balance sheet is helpful for:
Record Deposits Correctly
Don’t want to record income that isn’t income.
Track Accounts Receivable / Payable
Want to keep track of who owes you money and who you owe money to.
Inventory / Payroll Liabilities / Sales Tax
Inventory not an expense when purchased.
Payroll liabilities are usually withheld from employee paychecks and need to be remitted to the government at a later date.
Sales tax is collected when product is sold and needs to be remitted to the government at a later date.
Documentation / Retention
Write on Receipts / Invoices Immediately
Helps to document the business purpose of the expense and can capture some valuable information that's easily forgotten later.
Why is this beneficial?
Quickly recall the purpose and payment method for each receipt that you have.
Most questions from an auditor or bookkeeper / accountant can be answered by looking at the receipt.
Helpful for locating a receipt from a specific transaction in your accounting software.
How do I do this?
Start to get in the habit of writing on all of your receipts and invoices. You don't need a dissertation for each receipt, just a brief description. An example of a meal receipt could be, "Amanda / Todd / Michelle… discussed the marketing campaign for the XYZ product launch".
Create A Filing System
Scan All Receipts
Electronic system can cut down clutter and could potentially be easier to find something you're looking for.
Can be backed up in the cloud or external hard drive in case something happens to the paper file.
I see a lot of people wanting to do a bunch of folders to keep their receipts in. Either by year, month, vendor, or what have you.
I'm a fan of less folders because for each folder you have, that's one more folder I have to click into to see what's in there if I can't find something.
I usually name the PDF by the date (year, month, day) and then the vendor and category.
Some apps / software allow you to take a picture of your receipt and link it to the expense.
Getting It Done
Set Specific Time to do Books
Either weekly or monthly. Anything over that it starts to not get done.