Accounting is complicated. And unless finance is apart of your business background, which chances are that it’s not, keeping track of all the complicated bookkeeping can be extremely overwhelming. But to run any sort of online business, you’ll have to educate yourself a bit on the basics of business accounting. So, where do you start?
On a recent episode of The Anomalous Educator, I spoke with Meryl Johnston, founder and CEO of Bean Ninjas. She broke down business accounting into a 5-step framework that simplifies the process for us newbies.
Meryl says, “A good framework is based on creating good habits.” Using this framework as an outline can help you sort out the finances of your online teaching business, so that you can focus on the things that excite you, like teaching.
Have the Right Tools
Tools are essential for keeping track of your finances. Meryl recommends using Xero, but any accounting software you’re comfortable with will work. As long as you’re using software instead of a spreadsheet so that all your financial information is linked in one place.
Your bank accounts, PayPal, and money payment apps will all be able to sync to your accounting software, so that every transaction, deposit and withdrawal is tracked accurately.
You should also have a reliable method to store all your receipts. If you currently have them stacked in a shoebox under your bed, it’s time to rethink your strategy. Meryl says you could use something as easy of Google Docs or Dropbox to keep track of them, as long as they’re being accounted for.
If you don’t track your business transactions and purchases, you could be missing out on valuable tax deductions.
Keep Your Business and Personal Bank Accounts Separate
One of the most important rules of business is to keep your personal and business bank accounts separate. Not only because it’s easier to keep track of your spending that way, but because if you ever have to go back and gather your financial information for a tax audit or business loan application, it will be monumentally easier.
Once you have a separate account for your business, don’t use your personal account for any business expenses and visa versa. The same goes for credit cards. If you’re not able to get a business credit card yet, choose one personal card to use only for business expenses, so it’s easier to track.
Categorize Your Expenses
Besides keeping track of all your expenses, you should also be categorizing them. For example, money spent on mass emailing programs like Mailchimp can be classified as “marketing,” money spent on a new camera for filming your courses can be categorized as “equipment,” and so on.
By carefully organizing all your expenses, you’ll be able to track your spending on a monthly, quarterly, or yearly basis.
Keep an Accounting Timetable
It’s much easier to keep track of when and why money is being spent on your business if you keep a timetable. Everything should be tracked, like bills being paid, accounting tasks being assigned to team members, etc. If you have a calendar of everything being done, along with deadlines and due dates, nothing will be missed.
Keep Detailed Financial Reports
Financial reports consist of balance sheets, income statements, and a profit and loss (P&L) statement. These can be complicated, and it’s hard to know where to begin, so be sure to ask your accountant for details getting started.
But having these statements will allow you to review them when you need to, so you can make careful decisions about running your business.
These types of reports show you where you’re making money and where you may be spending too much money. It helps you tweak your spending so that you’re getting the most out of your assets and making as much profit as possible.
If this all seems complicated, trust me, it’s easier to start doing things from the start rather than going back later and trying to sort it all out. Take it slow and ask questions when you need to. But the most important thing to remember is to track every dollar. You won’t regret it.
For the full conversation with Meryl, click here.