Most entrepreneurs start their businesses with big goals and dreams in mind. One of those dreams is usually not the drudgery of keeping the books.
The good news is that with the modern software available and a few simple hacks, bookkeeping and accounting are not hard.
As a mompreneur, you have a lot to juggle already, so here are four accounting basics to keep things simple when it comes to your business bookkeeping.
1. Separate Your Business and Personal Transactions
Whether you have a side hustle making an extra $1000 a month or you have a burgeoning business empire, one of the most important things you need to do is keep your business and personal finances separate.
It’s important to identify your business expenses, and if you co-mingle your business and personal finances, it makes things really hard to track.
One of the best ways to easily separate your business finances is by opening a business bank account and credit card. Any time you receive income from or spend money on the business, be sure to use your dedicated business accounts. That way all of your transactions end up in one place, making them much easier to trace a few months later when you are scratching your head looking at your bank statements and trying to classify your transactions.
2. Track Your Income and Expenses
It almost goes without saying, but in order to be a successful mompreneur, you need to track your income and expenses. Many people make the mistake of just looking at the bank account balance as a barometer of how the business is doing, but without the granularity of where your money is going, you can never get the full picture.
There are many ways to track income and expenses, and it doesn’t have to be complicated. If you’re just starting out, categorizing them in a spreadsheet is perfectly fine. If you have a larger business with more revenue and moving pieces, it may be smart to consider special accounting software.
At a minimum, you’ll want to keep track of the following:
- bank account and credit card statements
- business-related receipts
- tax returns
- bills (including home utilities, internet, phone, etc. if you are working from home)
If you find the business growing faster than you can keep up with, it may be time to hire a part-time bookkeeper to help you stay organized (maybe another mompreneur who is starting a bookkeeping side hustle!)
3. Don’t Forget About Taxes
If you come from the corporate world, your taxes are relatively straightforward. However, as a business owner, you need to have a basic understanding of taxes, so you don’t end up owing thousands of dollars at the end of the year.
As a W-2 employee, your income taxes and FICA (Medicare and social security) are withheld from your paycheck each pay period. Also, as an entrepreneur, you’ll need to keep track of these separately. As a general rule, between the self-employment tax and income taxes, I try to set aside at least 30% of my net income for taxes. Obviously, this amount depends a lot on how much overall income you make and what tax bracket you are in.
Also, as a business owner, you will need to make quarterly estimated tax payments to the IRS. This is another great reason to track your income and expenses regularly. If you don’t, how will you know how much you owe?
Finally, depending on your product or service, you will need to research how much sales tax you need to collect and submit to the government. This is often overlooked, especially at the beginning, and can be a costly mistake!
4. Understand Your Financial Reports
You don’t have to be an accounting wizard, but knowing the basics of standard financial reports can help you track how your business is doing. These reports can be great tools to see whether your investments in marketing have paid off, which products are making the most profit and can help you identify areas where you can become more efficient with your finances.
There are three major financial statements to be aware of:
- Income Statement – The income statement (also called profit and loss statement) shows the revenue and expenses by category for a given period of time. It also shows the total profit or loss.
- Balance Sheet – The balance sheet tracks your business’s assets, liabilities, and equity. In simple terms, it shows what you own (assets) and what you owe (liabilities).
- Cash Flow Statement – The cash flow statement shows the actual amount of cash going in and out of the business over a given period of time. It can help you understand how much cash you have on hand and where that cash is going.
The Benefits of Accounting for Mompreneurs and Working Moms
Running a business is not that different from running a household. You need to manage your income and expenses to make sure they are not out of balance.
If your family follows a budget, like the Dave Ramsey budget percentages, there is a parallel to your business in how much of your income should go to various expenses like marketing, employee labor, raw material, etc.
By keeping good accounting and bookkeeping records, you will be able to set a realistic budget and make strategic business decisions using the power of the data at your disposal.
Bio: Andrew is the founder of Wealthy Nickel where he writes about all things personal finance. He has a passion for helping people pursue financial freedom through saving money, making money, and building wealth. Andrew documents his family’s journey to financial independence through side hustles while raising 2 kids on a single income.