I like to think that bookkeeping is sexy. I mean, who doesn’t love a list of their month’s transactions recorded in one neat report. <Cue the bow-chicka-bow-wow music!>
Not there with me? Your accountant is sure to think you’re dreamy if you get your business transactions in order before tax time. It will save you time and money and help you manage your business finances better—so your bottom line is sexier too.
Most online bookkeeping systems allow you to connect your bank feed directly to the program. This saves you the time of manually entering each time you spent (or made) money over the last month. But you also need to know where, in your business, you’re spending. That’s where categories come in.
Transaction categories put each type of expense or income into a neat little bucket. They keep your books clean, so come tax time there’s no guessing at what you bought for $127 at Amazon and how it fits into your business.
No matter what type of business you have, your income likely comes from different sources. If you’re a service-based business, you may offer more than one service. When you track how much each service brings in, you can determine best pricing practices and whether a service is a valuable piece of your business. (Is it really making you money, or are you spending more time on this service than it’s worth?) For product-based businesses, tracking revenue for specific products helps you determine whether you’re making money on the product once you subtract production costs.
Make a list of all the ways your business receives revenue. If you get stuck, take a look at your last bank statement. List all the different types of services and products, as well as any commissions, affiliate income, interest, rent, etc.
Even if you’re a small business in a home office, there is still an expense to doing business. Your laptop wasn’t free and you probably use your phone and internet to conduct business. Knowing your expenses can help you plan for the future and ensure that you’re staying in the green. But most of all, when you categorize your expenses you can see where you’re overspending and where you can cut back.
Make a list of every regular expenditure in your business. How much are you spending on gas, shipping, supplies, subscriptions, client gifts, software? Take a look at your business bank statement to help you through this process. (And if you’re finding that you’re seeping cash a bit, it may be due to those subscriptions. Read my recent blog about this and clean it up!)
A digital age bonus is that you can set up your bookkeeping system to automatically categorize transactions. This lets you quickly see the cost of providing a product or service—or of simply keeping the doors open. It also makes tax time much less taxing because your accountant can simply pull your reports, making it much easier to report on office supplies, education and training, business travel and gifts.
If you don’t already have categories set aside for your income and expenses, it’s time to get it together. Make those numbers sexier for your accountant.