Earlier this year, I spent the better part of seven full days preparing everything to file my small business taxes for 2015. I was totally unprepared. And when I say unprepared, I mean I was essentially the equivalent of the person who shows up to their accountant with a shoebox full of receipts. Although my sweet husband actually enjoys the process of filing taxes did all of the dirty work, it was (obviously) still up to me to provide him with everything he would need in regards to my business.
This happens to me every year and every year I declare that next year I will be better prepared. In all honesty, up until the past year it didn’t really matter whether I got my bookkeeping act together during the year because my small business was such a small portion of my income. But this year, between recently going full-time, taking on bigger clients, and – yep! – having a little one, it’s going to matter a lot.
Step #1: Get the Right Tools
Let’s start with the big one – at the bare minimum, you need an easy way to keep track of your income (profits) and expenses (losses) throughout the year. I love Quickbooks because it gives me a quick overview of my business’ financial health every time I sign-in. I can also invoice clients directly through the platform, though I do wish there was an easier way to invoice clients that are billed per hour (Note: For per-hour clients, I use the free version of Freshbooks for time tracking and then just duplicate each final invoice in Quickbooks. Not perfect, but it works okay for now.)
Expenses are where it can get especially messy, but Quickbooks makes it easy to add expenses incurred to your records when you add your bank account, credit card, and/or PayPal account to the platform. I also like that you can upload photos of hard receipts. Probably the biggest time saver for me is that Quickbooks remembers the expense category and description for vendors, so helpful for those vendors you use over and over again for the same purpose.
Almost every small business owner knows that miles drive for business purposes are deductible, but most are surprised to discover that in order to deduct those business miles, you also need to report miles driven for personal, commuting, medical, or charity purposes. Yikes.
Save yourself the hassle of a spreadsheet you are bound to fail at updating and invest in an app that can track every mile you drive. I personally like MileIQ, especially since you can update the purpose of each drive and any notes (for business miles, I typically include a quick note about who I was meeting with or which shoot the drive was associated with) from your mobile device or computer.
Again, most creative entrepreneurs that work from home know they can deduct expenses associated with their home office. But save yourself the clutter of a year’s worth of paper bills or sorting through messy online billing systems and create a basic spreadsheet for yourself. File it somewhere that makes sense – I use Google Docs and created a folder named “Taxes” with a subfolder “2016”. I have a workbook for each utility we pay to keep track of each bill/payment made throughout the year. Then the first workbook in the spreadsheet sums up the totals from each utility. If you own your home, you should also create a workbook to keep track of any repairs and maintenance you had done on your house that also impacted your home office.
Step #2: Create a System that Works for YOU
The funny thing is, I pretty much already had the tools in place needed to make my bookkeeping and taxes a breeze. But I wasn’t utilizing those tools because my “system” was broken, so the tools I was paying to help simplify my life were sitting dormant.
At the advice I could gather from small business owners who handle their own taxes, most creative entrepreneurs set aside one day a month to complete bookkeeping from the previous month. So I put a reminder on the first business day of each month to sit down and do the same. Except I didn’t do that one time in 2015, thus leading me to seven full days of doing so under the stress of holding up my husband and our refund.
Knowing that once a month was too infrequent for me to stay organized and updated, I changed my system to update my records at least once a week. For me, Fridays tend to be a slower business day for me, so I sit down with a cup of coffee and take a few minutes to update anything new from the previous week. You can set a calendar reminder to help keep you on track, but I would suggest actually scheduling it as an event in your day rather than an “all day” event.
My intention is to keep up my new routine of entering in my hard receipts and updating business mileage as soon as I get home, but life gets messy and busy. So now I have a standing weekly appointment to categorize those expenses, along with any payments or additional expenses that have come in over the previous week.
Step #3: Update Systems as You Evolve
While you’re scheduling that recurring weekly bookkeeping appointment on your calendar, go ahead and schedule a time to check-in with yourself to ensure your new system is working. For me, I scheduled an appointment to check in at the end of every quarter to ensure everything is running smoothly and my records are up-to-date. Things change quickly in life and business and it’s important to keep your systems working for you, so use the evaluation as a time to make any need adjustments to keep things running smoothly.
***It’s also worth mentioning that many small business owners choose to outsource their bookkeeping and/or tax preparation to a professional. I completely advocate outsourcing any part of your business you are able, as long as it makes financial sense. However, for a lot of creative entrepreneurs, myself included, our bookkeeping is small and uncomplicated enough to manage on our own. The key here is to have the tools and systems in place to keep the task manageable and stress-free.
I hope these tips have been helpful as you begin your bookkeeping for a new year! Do you have any tools or tips that have made bookkeeping more manageable for your business?