Small business bookkeeping is like cod liver oil; you know it’s good for you, you’re worried it’ll leave a bad taste in your mouth. We specialize in making stuff like this easy to understand.
You know you have been avoiding this for a long time. Learn the very basics of bookkeeping and you won’t feel like you’re a victim of your business. You’ll be running the business instead of the business running you!
Let’s start with a chart of accounts. These are essentially the “files” your financial activity flows in and out of. Are you a cake baker? Then your chart of accounts might look like the following.
(The parenthesis indicates where those numbers finally show up in your financial reports.)
Chart of Accounts for Baking Business
Cash in Checking Account (Balance Sheet)
Cash in Savings Account (Balance Sheet)
- Birthday Cakes
- Wedding Cakes
- Anniversary Cakes
- Holiday Cakes
- Gluten Free Cakes
Cost of Sales (Profit and Loss Statement)
- Baking Ingredients
- Decorating Supplies
- Boxes, Platters, No Edible Supplies
Expenses (Profit and Loss Statement)
- Web Expense
- Delivery Expense
- Office Expense
- Telephone Expense
- Insurance Expense
- Rent Expense
- Utility Expense
- Miscellaneous Supplies
- Taxes (If you earn a profit)
Retained Earnings (Balance Sheet)
Capital (Balance Sheet)
Step 1: Cash accounts are your transaction accounts. They enable you to receive and dispense cash. They’re always the first accounts. Hopefully, cash in is greater than cash out. That’s the objective. Easy, yes?
Step 2: Sales accounts indicate all the ways the business brings in revenues. These are all the different types of products or services you sell, by category. You can see, we’ve established some categories for different kind of cakes to satisfy most palates. I love carrot cake cupcakes, how ’bout you?
Step 3: Cost of sales (or Cost of Goods). Cakes cost you something to make. These are direct costs including direct materials and direct labor to create each masterpiece. If you deduct Cost of Sales from Revenues, you should have a positive number (may it always be).
The result is your gross profit. This should be at least 30% of Revenues so you can pay operating expenses.
Step 4: Expenses. You can’t keep all the money you earn in Sales because you have to pay suppliers, utilities, insurance, rent etc. We highlighted some typical expenses categories, though your bookkeeper might find others.
Web expense is pretty significant these days with video production and editing expenses. Be sure to capture ALL your web-related expenses.
Step 5: Retailed Earnings. These are cumulative profits you keep in the business. The Balance Sheet will capture these.
Step 6: Capital or Investors Capital. This is what the original investors gave to the business to get it off the ground. You’ll find this on the Balance Sheet as well.
All these accounts feed only three key statements; The Profit and Loss Statement, the Cash Flow Statement and the Balance Sheet. Read these statements and you’ve got it nailed. They are your GPS for managing your business.
We explain all about these three key statements in our Instant CFO Course. Even if you’ve never taken an accounting or finance course, understanding how powerful these statements can be will change your future. You get the Instant Marketing Manager and Instant Sales Manager Courses as a bonus!
We’ll show you how to double your profits with the same effort in any economy.
Here’s a note from one of our entrepreneurs:
“Dawn, I can’t thank you enough!! I can finally read my profit and loss statements! For ten years I’ve felt so inadequate not understanding such a key aspect of my business. In five minutes you clearly explained in detail how to use this invaluable tool; in a language I can understand! Thank you! I can’t wait for the next class!”
It’s all there for you in our training videos. Need more help? Don’t Panic! Ask Dawn!
We’ll get back to you either online or via phone. Your choice. It’s the only live help desk online for small businesses.
And it’s free for now.
We don’t like to drive a car with our eyes closed. Neither should you run a small business without knowing the basics. We make it easy.
Our Instant CFO, Instant Marketing Manager and Instant Sales Manager Courses will teach everything you need to know about running a successful small business. A $249 value for only $49. You get the Instant Marketing Manager and Instant Sales Manager Courses as a BONUS!
Download Cash Flow Management Whitepaper
If you haven’t done it already, download our cash flow management whitepaper.
It’s free. I wrote it because no one else was talking about this stuff.
If you run a small business, you need to read it. Fast and easy.
Tell everyone you know who runs a small business they should read it too.
In your corner as always,