You’re an artist, a craftsperson and a passionate small business owner, but there’s a good chance you’re probably not an accountant. Or a finance expert.
And you shouldn’t have to be.
We all know that the finance side of managing a business can be challenging and not quite as much fun as making pretty shiny things. When faced with a choice between playing in the studio and doing your bookkeeping all of us would prefer to play.
However the health of your finances is what keeps you in pretty shiny baubles. And maybe even allows you to pay yourself.
Staying on top of your finances is not complicated or hard. I am a full-time lampworker and jewelry designer and I do all my own bookkeeping. I don’t use any accounting software, just Excel spreadsheets. I spend 2 hours a month on my books. That’s it. 2 measly hours. Every spring I take my spreadsheets to my accountant and he files my taxes. Easy-peasy.
There are 2 lessons I learnt early on in my career.
First is that you need to do your books every single month, consistency is key. You want to avoid that horrible feeling in April when your taxes are due soon, and you have 8 shoe boxes of receipts from the last year that have to be dealt with. Now that is NO fun.
Second lesson was to hire an accountant to take care of filing my taxes. I do not know the tax laws and I don’t want to learn them. An accountant went to school to learn this, I did not. I would rather take jewelry classes. A good accountant will save you oodles of money by finding deductions that you don’t know about. Spend the money (mine costs $275).
In a nutshell here’s my monthly bookkeeping routine.
On my desk I have a large blue plastic envelope. This is where I throw all my receipts when I go through my wallet and the bottom of my purse. I have a desk tray (lime green) where I put my incoming statements (bank, credit card etc). I usually do the books around the 18th of the month after all my statements have come in.
All my finances are in Excel spreadsheets. I have the following sheets:
- Income Statement
- Cheques written
- Account Payable - Money I Owe
- Accounts Payable is often empty. It does fill up in the winter time when I am booking shows. By putting a line item here for fees that will need to be paid I can keep the amounts on my radar screen. It’s also useful for remembering things like the annual fee for web hosting, or other stuff that can catch you unaware.
- Accounts Receivable - Money I am Owed
- As I sell only for cash it is rare that there is anything in the Accounts Receivable sheet. If you were selling to stores on terms such as Net 30 you would be owed money.
My 2 hour sessions includes:
- Check my wallet again for missing receipts, also the bottom of my purse and grocery bags.
- Download my monthly paypal statement, this lists all my online sales.
- Download all my e-statements since most utilities are paperless. If you are working out of your house you can deduct a portion of your house expenses (such as hydro) as business expenses so make sure you have the statements.
- I make sure all income from the month is on a spreadsheet. ALL income. Make sure you separate the taxes collected from your actual sales.
- Next is expenses. I use an Excel spreadsheet with different worksheets for different categories. For example, one worksheet is for supplies, another for office, another for rent (booth costs) etc. How you want to break your expenses down is up to you. I suggest that you ask your accountant. If you are a really small business you might just maintain one worksheet and have a separate column called Notes where you mark down what the expense is. Again, make sure you separate the amount and the tax paid.
- Note: when you claim expenses back when you file your income tax you can only claim the actual amount and not the amount plus the HST paid.
- Now I go over my bank statement. I have a separate business bank account. (link to separateing the 2) I check to make sure that I can account for everything coming out and that it is entered in my expense sheet. I check to make sure all incoming money is on my income sheet. I enter the banking fees onto my expenses form. If any cheques have cleared through I take them off my list of Cheques Written (oh so technical!).
- I go over my credit card statements. Sometimes spontaneous purchases happen, I want to make sure they didn’t happen too often. I also want to make sure that I have a receipt for each item I bought.
- I check my Accounts Payable sheet to see if there’s anything coming up that will need to be paid.
- Last I enter both income and expenses onto my Income Statement sheet. An income statement is a sheet that list income and expenses telling you the net profit or loss. If income is higher than expenses you made a profit, if income is lower than expenses you lost money.
- I take all receipts for both income and expenses and shove them in a manila envelope. Label the envelope with the month and the year and stuff it into a box (blue of course). All business receipts must be kept for 7 years.
Finances aren’t hard or scary. They only become scary when you let them morph into giant boxes of unknown receipts or stacks of unpaid bills. Maintaining your business books doesn’t require complicated formulas or calculations, it’s nothing more than entering data from receipts onto a spreadsheet.