Starting up a new business is exciting. When the creative juices are flowing and a person is dreaming about where they want to take the business, the energy is magical. I love seeing that spark of passion when I work with aspiring entrepreneurs. I love helping them envision the possibilities.
And then comes the hard part. We have to get down to the nuts and bolts of day-to-day operations and ask the dreaded question: “What are your plans for taking care of the bookkeeping and accounting for the business?” I almost hate to ask that question because it shifts a person out of the visionary part of the brain into the boring territory of the left brain.
The answer we often get is, “I haven’t really thought about it. I have some receipts in a shoebox.” At that point my fellow mentor and I glance at each other with that familiar look that says… “Oh oh … we’ve got work to do!”
For small business owners, bookkeeping can be a daunting task. However, understanding bookkeeping basics is crucial for making informed financial decisions, paying taxes, taking advantage of tax write-offs and ensuring your business’s long-term success.
Every person who is planning to start a new business should begin keeping track expenses immediately to take advantage of the tax write-offs that are available. Even before you ever make a cent of income, you should maintain documentation of every penny you spend during the business planning and start up phase.
This can start with the shoebox method and a simple spreadsheet. You can track your business mileage on your calendar. The important thing is to keep track of every expenditure until you can transfer everything you have tracked into a formal bookkeeping system, such as QuickBooks.
We always recommend three very important initial steps that must be handled sequentially when setting up a business. First, determine what legal entity you will operate under (DBA, LLC, etc.) and set it up. Then file for an EIN (employer identification number) if you do not plan to use your social security number. Then set up your business bank account.
Having completed this very important framework, you are ready to establish your formal bookkeeping system. Channel all income and expenses through your business bank account and never mix things with your personal checking account.
For those who hate the very thought of accounting, SCORE will offer a free workshop to help demystify the subject. Accounting consultant, Phyllis Johnson, will cover the set-up of a bookkeeping system that works for your business. She’ll offer tips on tracking income and expenses, plus show how regular bookkeeping practices can make tax season much easier.
This is a live online event at 1 p.m. on March 21. To register, go to the Local Workshop tab at www.score.org/traversecity. This is just one of many workshops SCORE offers to help business owners and aspiring entrepreneurs gain new insights and answers for the challenges they face.
Donna Probes, M.B.A., spent 10 years as a small business owner.
She is retired from the Traverse City Area Chamber of Commerce and is active as a SCORE mentor as well as a professional musical performer. For information on SCORE, visit traversecity.score.org.