During the month of May 2021, I'm intensively working to launch my home cupcake business, 'Phoebe's Cupcake Treasures'. My main focus will be on social media marketing and managing the business' finances. The entire project is a massive challenge but exciting for me, since I'll be learning a ton of entrepreneurial skills and monetizing my baking passion. This blog post is one aspect of my project, so please click here to see the rest of it!
Why you need a bookkeeping system for your small business
Installing a bookkeeping system for your small business is vital in helping you better understand your business’ finances. Speaking from personal experience of running my cupcake business, creating a bookkeeping system has clarified exactly what I’ve spent my money on, and has given me valuable information such as where I should cut down on costs.
Over the last few weeks, I’ve researched in depth about bookkeeping and experimented with accounting softwares to create an effective bookkeeping system for my business. In this blog post, I share 5 simple tips I learned to get your business’ bookkeeping sorted.
1. Separate personal and business transactions
This is crucial so you can have bookkeeping that accurately depicts your business’ financial situation. It also makes the bookkeeping process much simpler. Having to dig into a personal bank account to find a business transaction is too much headache.
2. Have one bank account dedicated to business transactions
I opened up a debit account that I only use for transactions within my business, such as purchasing cupcake ingredients and business registration fees. When I need to enter the transactions in my bookkeeping spreadsheet, all of the transactions are in one place and not contaminated with my personal cash.
3. Keep a record of all your business transactions in a convenient place
Similar to having one dedicated business bank account, keeping records of transactions in one place makes the bookkeeping process efficient. I’ve kept this very simple for my business; I take a photo of all business paper receipts and save it to a photo album on my phone.
4. Decide how often you would like to record and report
I suggest picking a time period that you can stick to. Whilst it’s ideal to update your financial records as soon as a transaction occurs, I found that I couldn’t do this consistently. Instead, I’ve allocated an hour on Sunday evenings to do this, which is much more convenient for me.
I’ve also made my business’ reporting periods every two months long. Feel free to make it monthly or quarterly, as long as you don’t change the period length. It’s important to always keep your reporting period the same length so you can accurately compare financial performance of different periods.
5. Use an accounting software or make your own digital system
It’s a good idea to experiment with a few accounting softwares to see what works best for your business. I tried the free ones like QuickBooks and ZohoBooks, but found that they had many complicated functions unnecessary to my new business. Therefore, I resorted to creating a simpler system on Google Sheets, which I explain in the 6-minute video below
In the video, I mention:
Why I’ve chosen to use cash accounting
Why I’ve chosen to use single-entry bookkeeping
The journals
Why I track the hours I’ve worked in my business
The reports
In addition to the bookkeeping spreadsheet shown in the video, I also created a product cost calculator on Google Sheets. This is a really handy tool as it helps me determine my cost of goods sold and profitability.
NOTE: To protect private information about my business, most of the spreadsheet data has been removed from the file above.
Wrapping it up
Most small businesses fail due to poor finance management. Knowing this, I made an effort to prioritize money management, which starts with having a solid bookkeeping system. Whilst the process of getting this sorted was challenging and quite overwhelming, I was able to put together an efficient system with some research and experimenting. I found the tips shared above really helpful, and I hope you do too!
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