I don’t care if you are a part-time freelancer, a side-hustler, a blogger making $100 per month, or a full time business owner – you NEED an accounting system. And no, I don’t count a pen and paper as an accounting system.
Well, what is an accounting system then? I am talking about a software tool that keeps track and manages all the ins and outs of your business. The system can also be called “bookkeeping system” or “financial management tool”. Here’s a list of a few popular ones:
So you probably track with me on why it’s important for a full-time business owner to keep an accounting system or “books” for their business, but you might not be convinced that you should for a part-time or freelancer gig. I’d like to present a few ways that an accounting system can help you be more successful in any business venture:
- Provides Clarity The process of setting one up makes you realize the important financial numbers and accounts that you have associated to your business. When you set up one of these systems, you need to link your bank account and list any assets and debts your business may have. Accumulating these things in one place where you can see the numbers visually is helpful for understanding the financial strength (or weakness) of your business. Even if you see problems, the first step is KNOWING that there’s a problem!
- Creates Mental and Physical Separation By setting up a system, you are taking a clear step towards thinking of your business as a separate entity. When you keep your books separate from personal finances, you are saying to yourself. “This is real. This is important. And I need to treat this with care!”
- Saves Time It’s WAY easier to manage an accounting system than it is to keep track with paper or even a spreadsheet. I’m telling you, these systems have been simplified SO much, that you will be kicking yourself for not doing it earlier. Setting up takes a little bit of effort, but even setup is very easy with these cloud-based systems.
- Saves Money You will save money by accurately capturing your business expenses. Now, if you don’t have a business bank account, I want you to make sure you do that first. See my Ebook “5 Common Money Mistakes Small Business Owners Make (and How to Avoid Them)” for more details on why you need a business bank account. However, if you already have a business account, you still may get caught where you buy something on a personal debit or credit card. These types of transactions are still deductible for tax purposes, but if you aren’t tracking expenses in a system, you will likely miss out on that deduction because…WE ALL FORGET! It happens. A system helps you minimize that risk. The system will also allow you to easily review your expenses and see if you are spending too much in any one category. You can use prior history to develop future budgets to help you rein in spending.
- Provides Insight When your numbers are captured into one system over time, you will be able to create accurate reports that will help you have better insight into the operations of your business. Here are some questions you might want to know the answer to as you are running your business:
- How much money did I spend last month? Last year?
- How much cash do I need to have to cover monthly expenses?
- Has my income grown from this year compared to last year?
- How much money did I make in the quarter for tax purposes?
- Are there any income trends (i.e. seasonality) I need to be aware of and plan for?
- How much did my expenses increase in proportion to my revenue growth?
These questions can all be easily answered with a few clicks when you have an accounting system in place. Doesn’t that sound empowering??
- Speeds up Payments Most accounting systems allow you to invoice clients/customers electronically and even accept payments online! No more waiting for checks and awkward requests for payment. Looking professional with a nice invoice and providing easy payment methods will enable your customers to pay you faster.
Taking control over your business finances with an accounting system will make a big difference in your business. You will be more confident in your decision making, be able to rest easier at night, and ultimately, your business has a better chance at long-term success.
If the idea of getting an accounting system is just too daunting, we can help! We are going to be doing a workshop at the beginning of 2018 where we will walk you through how to set up your accounting system setup and customized for your business. If you want to know more about that, sign up here to get updates on the program.