The new year has come, and hiding just behind the celebrations and the new year’s resolutions lists is the tax man waiting to strike. Taxes started for me in early January when I first put together a list of everything I needed to do to bring my corporation’s books up to date for 2006. It won’t end until everything is filed, but the worst is behind me.

In spending countless hours putting together my financial statements I’ve learned quite a bit this year. I’ve taken what I’ve done well with the mistakes I’ve made along the way to provide some tips to owners of small businesses panicking about the dreaded notion of bookkeeping.

Reasons to Keep Your Books Up to Date

Most of the small business owners I’ve spoken to are a few months behind on their books on any given day. It’s natural to want to toss it all in a pile (or more likely 1000 different places) and catch up a few times a year. I’ve done this plenty of times, but as of February 2007 I vow to never let it happen again. Here are a few motivators for keeping the books up to date:

• Tax filing becomes much easier. Come tax time you will have to do an exponentially smaller amount of work when the books are all up-to-date.
• No playing detective. Putting off bookkeeping inevitably results in coming across purchases and payments with missing information that were made months ago. Inputting everything right away ensures you aren’t hunting through old statements and receipts trying to figure out what you bought for $14.95 4 months ago.
• Take advantage of valuable financial analysis. Any decent accounting software package can provide a wealth of information about your financial situation at any given moment. Want to compare your Profit & Loss statements for the last 3 months to see if you’re on track? It’ll take about 3 minutes to generate these reports if your records are up to date. You can also keep on top of your cash flow situation, view financial ratios, track your sources of income, make sure money is being collected, and generate more graphs than you could ever imagine.
• You’ll know if you’re making money. If you haven’t tracked all your expenses and all your income, how do you know if you’re turning a profit? How can you judge if you’re expenses are running amok? A positive bank balance means you have cash, but it won’t tell you much else.

You get the point - bookkeeping is a good thing. However it’s not a particularly exciting task and only starts feeling urgent when someone else needs your information, be it the tax agency or a potential investor. At that point it becomes a race to put everything together in time. It’s a stressful and time-consuming approach, and denies you the use of your own financial information when you yourself need it.

If you are a small business owner that isn’t standing smirking right now, knowing all the accounting is done, join me in making 2007 the year the books stop being a thorn in our sides.

Tip #1: Get a Decent Software Package

Far too many people that I have met use Excel spreadsheets as their accounting solution, and they all insist that their spreadsheets are coded correctly and work fine. Unless you have a very good reason not based around saving $200, buy a decent accounting software package rather than trying to come up with your own solution. You’ll thank me when:

1. Your books always balance.
2. You can generate a wealth of financial reports on the fly (and be confident they are being generated correctly)
3. You realize the amount of time you’ve saved over trying to maintain your accounting own system.
4. Take advantage of all the extra features put in to make your life easier, like invoice generation, customer management, online banking integration, etc.

I’m personally a QuickBooks user and love it, but choose whatever fits your requirements and has an interface you will be comfortable with. Initially working with an accounting package can be intimidating and you can find yourself looking through help far longer than actually doing bookkeeping. I’ve come to the conclusion that this is one of those things you can only ever learn by diving in and doing it, so don’t let not knowing how to enter everything keep you from starting.

Tip #2: Learn the Basics of Accounting

It’s not as boring as it sounds! I’ve actually enjoyed taking accounting courses and will happily take more. If you aren’t interested in taking a course a book will do just fine. Regardless of how you choose to learn, by taking the time to understand basic accounting principles such as Assets = Liabilities + Owner’s Equity and how these components are calculated and linked you will understand what your accounting package is doing behind the scenes and have a much easier time understanding how transactions should be entered (not to mention what your financial statements are telling you!).

Tip #3: Automate Your Books

Not all transactions can be entered immediately, nor is it particularly efficient to enter every $4.95 customer payment the moment you receive it. In keeping updated books I’ve found it’s much more important to put a process in place that ensures the data gets captured in a regular and consistent manner instead. If you are lucky enough to have a sufficiently digital business, automation for you may literally mean importing data from an e-commerce system or a cash register automatically. For most of us there is a significant amount of record keeping that involves a human, and being a small business that human is often the owner. This is where the system breaks down, as regular tasks are put off for days, then weeks, then months. Luckily humans can be automated too by putting the right processes in place.

To make sure these regular tasks do indeed get done regularly a trigger is needed. At the moment I have my Outlook calendar setup to remind me of important monthly accounting tasks. These are recurring appointments setup with actual times booked off, which ensures that I will do the tasks when the appointment actually pops up. I experimented with flagging all-day events with no specific time, but I found that I simply keep snoozing the Outlook reminder until I accidentally dismiss it and the task ultimately doesn’t get done.

I have a number of situations where setting up recurring automatic tasks makes a lot of sense. For example there are a number of PayPal customer payments that I receive on a monthly basis through the PayPal subscription system. I could enter these each time the transaction occurs and have my sanity slowly wither away, or I could export an Excel file once a month and put the transactions in then. Before I booked off time to actually do this every month it simply piled up, but now it’s a regular appointment that I can adhere to.

Tip #4: Reconcile your Bank Accounts

Ideally you should reconcile your banking statements against your books each time you receive them. This is an invaluable check to ensure that all your records relating to this month are in fact entered and helps greatly in avoiding things falling between the cracks. QuickBooks has a feature built-in specifically to do this, and I’m sure other packages do too. For example by reconciling my main checking account I know that I have entered all the payments that I received this month along with all the expenses, and I know everything required to have been able to enter those transactions is done as well (for example if I have recorded a customer payment, I also know that the invoice was done).

The process itself is quite simple. You take your bank statement and ensure that each of the transactions on it match with what you have entered, and once this is done that the beginning and ending balances are. If you have mistakes, duplicate entries, or omissions this will highlight them very efficiently. I’ve found it particularly helpful in catching small discrepancies as a result of minor typos or incorrect rounding. In QuickBooks there is a separate function available to do reconcile, which tracks which transactions have been reconciled and generates a reconciliation report for each statement you do this for.

To make sure reconciliation gets done you need to setup a trigger as explained in tip #3. The natural temptation is to use receiving the statement itself as the trigger, but I’ve found it’s far too easy to toss it on your desk and leave it for “later”. In this case I again cast my vote for a calendar appointment, made several days after you expect to have received the statement. A subtle bonus is that if your statement gets lost in the mail you will notice its absence.

Tip #5: If You Get Stuck, Enter it Anyway and Seek Help Later

I still run into transactions that I’m not sure how to enter correctly, and when first starting out with QuickBooks it felt like half entries fell into this category. I used to let this stop me dead in my bookkeeping tracks since I refused to enter the transaction until I could find some help on how to get it entered correctly. I had quite a few of these unentered transactions, and once I knew that even if I entered what I could my books would still be missing lots of data there was no longer any motivation to keep them updated regularly.

I’ve realized now it’s much better to do my best at entering anything I’m stuck on, write down the questionable transaction, and double-check the list with a bookkeeper later on. In going through this improved process I found that I had in fact entered most things correctly after all (if not necessarily in the most efficient way), or had only minor errors to fix.

Tip #2 really helps here since by understanding the underlying accounting principles it’s much easier to make an educated guess with an entry and to know when something doesn’t seem to be entered right (ie. the wrong accounts have changed). Accounting packages also do a lot of work to ensure your books are balanced, which makes it harder to really mess things up.

Get those books up to date now!

That ends my five tips, although I can come up with more (future article perhaps?). Note that these tips have all focused on setting up a system for keeping your books up to date. This is key since trying to do bookkeeping adhoc and promising yourself you’ll keep at it just won’t work. We’ve looked at remedying this through tips on getting the right tools and knowledge, setting up regular processes to ensure your transactions get entered, and verifying this data.

Disclaimer: I’m neither accountant nor attorney nor likely live in the same country as you. This article is not intended as tax or legal advice and does not replace such advice. Consult a professional before acting on anything you have read on this blog. I’ve found the tips above helpful personally, but cannot guarantee the accuracy of the article.

It is now the 12th - exactly 2 months since my last post. I didn’t realize this when I woke up and decided to blog today, but it’s an interesting and encouraging coincidence. Today is the beginning of the renewal of this blog, which I am determined to continue.

Where’d Matt Go?

Two months ago I disappeared almost entirely from blogging since I wrote my previous post. I stopped writing my blog, I stopped reading other people’s blogs, and I most definitely stopped paying attention to the myriad of statistics that I normally track for this blog. I did this because I simply ran out of time, much more so than I had ever imagined. This shortage repeatedly extended itself as I found myself picking-up more website work, marking business student exams, finding a better place to live, handling a failing hardware emergency, and finishing off what was technically a school term.

Truthfully I didn’t intend to stay away this long, but I fell into the trap of breaking the blogging habit. Much like exercise, dieting, or anything else that requires a regular commitment, a short pause became a very long one. By the new year I could have been writing again, but I put it off longer. Today I decided enough was enough.

The Blog’s Been a Bit Neglected

The break has proved to be an interesting experiment for this blog itself. A big deal is made about how blogging encourages links, viral spreading of content, search engines love it, it prevents global warming, and so on. Not blogging for two months is a massive setback. Inevitably daily readership is lost, RSS fails, rankings crumble, and traffic goes down the tube. I’ve noticed all of these happen and in my return I’ve prepared for the worst. Here’s the sometimes surprising good and bad of the past two months:

1. December was terrible: it must have been the holidays, as traffic and Adsense revenues both plummeted at an alarming rate. January has shown an awesome rebound.
2. The Comments Keep Coming In: real human beings are still reading. I still regularly receive comments on my previous articles.
3. Search engines still love me: my page rank may have dropped from 5 to 4, but the search referals are going strong. A single well written article really does mean a lifetime of traffic.
4. I no longer remember my Amazon Associates password by heart.
5. I have a back-up business opportunity: thanks to my lost virginity article, I will forever have a strong presence with people searching for “virginity stories”. It’s one of my top searches.
6. This blog does have serious passive income potential: the fact that I have continued to earn money and receive traffic while doing absolutely no updating or promotion of the blog is proof positive that it does have passive income stream qualities. Every penny I have made since I stopped writing is money that has come in regardless of what I have been up to. In the blog’s current form this hasn’t amounted to much, but hey it’s less than a year old!
7. Most blog’s don’t make it a year for a reason: this has been a very time consuming project and I can understand now why I hear about the failure rates of blogs so frequently. It can be demoralizing in these early stages to see a relatively low return on your efforts, and when much higher return activities are available it can be difficult to put in the proper time to this blog. Nevertheless I am determined to beat the statistic, and I am positive that with patience I can make this one of the top blogs out there.

I’m going to continue on writing about entreprenurial topics, and now that I get to manage my business fulltime I hope to have some interesting new insights and stories to tell. To anybody that’s been checking this thing for two whole months, thanks for sticking by me!

This has been the longest I’ve ever gone without a post on this blog, so sitting here 15 minutes before I need to leave for the first appointment of my day I’ve decided to break the silence. The lack of posts right now is pure and simply a lack of planning that I could have forseen very easily.

I’m currently facing my most challenging month time-wise in over a year. The amusing part of it all is that I’ve known about it since August and no real surprises have come up - when you’re running a business, going to school, and teaching business labs looking months ahead is mandatory. My mistake was not writing some posts ahead of time and not choosing to write posts over a period of several days during October. This would have solved the problem as catching 20 minutes here and there is much easier than justifying using a free 2 hours to work on the blog instead of a client site, particularly with so many deadlines coming up. Lesson learned.

What exactly have I been so busy with?

Tilted Pixel

My website development business has been reaching and exceeding the already ambitious goals that I had set out for it. Clearly I have something that I can further develop and grow, a process that I will write more on when the really exciting stuff starts happening in January. At present I’m constantly working on client sites as well as planning out the future and dealing with the administrative details that come part and parcel with a growing business.

I had the opportunity to give a short presentation about the company to an MBA entrepreneurship class at Laurier, which I found to be quite the experience. The question period went massively overtime until it was finally cut at 40 minutes, double that of the actual presentation! MBAs definitely are a lot more inquisitive than undergrads.

Business TA’ing

I’m a teaching assistant for first year business at Laurier, something I’ve always wanted to do and which has taken the place of the volunteer economics tutoring that I was involved in the past two years in. Three hours of teaching a week, TA meetings, office hours, and of course marking. I never really had the time to accept the position, but wanting to do something and passing it up when you do have the chance is very hard to do.

It’s proving to be a very rewarding experience and I’m learning at least as much as my students are.

Yes, I’m Still Working on a Degree

I am working towards a Business and Computer Science double degree, a five year program that I’ll be in for quite a while still. Looking back a ridiculous amount of changes and progress have occurred since I started, and looking at everything else that is going on it feels weird to be a student too. I have 12 hours of lectures a week, of which I usually manage to attend 10. The wave of midterms and assignments that come in October have played a very big role in making the month so busy.

All in all it’s proving to be an interesting four months and furthermore a busy October. After this week you may start seeing some thoughts from me again.