How to track your finances [80% that do not…fail]

5 Steps to Home-Business Accounting for Entrepreneurs

You started your side hustle so that you could contribute more money to the family budget, maybe get out of debt, or even grow a business to replace your 9-5 job. So, how much money are you really making? Tracking your finances is actually one of the most important parts of running any type of hustle. In fact, most small businesses fail because they simply don’t know if they can spend more or should save more.

The What, When, Why of financial tracking.

Tracking your finances means recording your income and expenses in way that shows how much you have made, where you made it, and what you spent it on. It’s a reflection of what you have done, or are doing in the immediate moment. This is not the same as a budget which is telling your money where to go before it hits your bank account.

So, why are we even spending time on a task that most of us hate:

  • We love to pay ourselves from our business: it’s why we got into this game. If you don’t track how much you’ve spent from your income then you will not be able to accurately pay yourself.
  • Business valuation: if you want to know that you’ve built a profitable business that has value to your family and the rest of the world, this is how you do it. The month to month, year to year records are your proof, your profit statement to the world. So keep track and know how much you are worth.
  • Step up your reporting game with your CPA: Handing your accountant bank statements works, but that is basic and costly if your CPA charges you for creating your financials. Hand them a set of annual financials as well. Not only will they charge less for your tax return, they will be able to consult you on your business profitably and other Key Performance Indicators (KPI).
  • Tax payments: Yuck! But I bet you do not know that the IRS expects profitable businesses to pay their income taxes in 4 quarterly estimate payments through the year. If you do not then you can expect a fine (usually buried in your tax refund or payment). Keeping records of your income and expenses is the BEST way to estimate your quarterly tax payments and avoid penalties.

How to use QBO to track your finances:

#1 Use Technology – Set up a QBO Account

  • Simply put, QBO remains the best online accounting software available to small businesses to date. We have tried the others, and we will continue to look for better, but better hasn’t quite happened yet. QBO offers the greatest bulk of usable features that will help you record your finances quickly and easily
  • Second, we do not recommend QBO sole proprietor. Why? Well, if you know us at all then you know that we treat your sole proprietorship just like any other business. That means you have a separate business bank account, and a separate set of books to track it. Therefore, get the features of QBO Essentials.
  • Creating the account: are you looking for help in creating, or revamping, your QBO account? Stay tuned for our QBO course coming live soon, or contact us immediately.

#2 Connect your bank account:

  • If you are not connecting your bank account to your QBO software, then you are missing out on the most time-saving feature that QBO offers. It will pull your bank statement data into your QBO register for you reducing your input requirement significantly. This is one of the biggest mistakes that I teach people about. Do not be scared of your data getting hacked, it’s as secure as possible. Do not think that you can hand key the bank statements yourself, either. You will quit in two months.

#3 Accept your transactions monthly:

  • This is the actual act of inputing your transactions into the bank account register in order to create a record of your income and expenses. The bank sync feature merely pulls the data from your bank account into QBO. You actually have to categorize that transcation and choose whether or not to record it into the register yourself using the add button.
  • This is a task that can be done monthly unless you are running a very tight budget and need to know your cash availability daily. My recommendation is to put this task onto your calendar monthly and make sure you have an hour or two of completely uninterrupted time.

#4 Reconcile your bank accounts:

  • Another huge mistake that people often make is failing to reconcile the bank account. What does that even mean? Great question!  I have realized that most people in our generation, and after, do not know what bank reconciliation is. A ‘how to’ blog will soon follow. For now, it simply means ensuring that every transaction in your QBO account occurred, no more and no less. We do this by matching our recorded transactions to the transactions on the bank statement after the month’s end. QBO has an easy to use reconciliation feature with great how to videos, or check back here for the next blog.

#5 Prepare a monthly profit and loss statement:

  • Show me the money! Income Statement, Profit Statement, whatever you want to call it, this statement shows what your business made and spent in any given period. The final number is your net income, your take home pay, the reason we do this!  This money can now be put into the business for growth, put towards your debt snowball, or be put into your personal bank account for that beach vacation you have been hoping for. Make sure to write yourself a check from the business account into the personal account. This is the best way for proving its where the money went.
Let’s wrap it up

Remember, do not make this hard. Create the QBO account, connect your business bank account, accept & reconcile your monthly transactions, and print your report. That’s how I do it here at Barklee, and every other accountant in the world. Put this task on your calendar and you will be a pro at it in 90 days.

What is next? Need more help?

I can’t express this enough; Barklee was built to help mompreneurs, dadpreneurs, and all the ‘preneurs. So, if you need someone to jump in and get your ball rolling shoot us an email. Our parent company, Barklee Financial Group, LLC will create your account for you, reconcile your year to date, and print out that first profit statement. Then you are off to the races. Can’t wait to talk.

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