This is a tricky one for small businesses. For me, it was especially hard because when I started out there wasn't anything I could find that fit into what I needed. I sell vintage clothes that are one of a kind so it's hard to keep track of that since I never restock with the same things over and over. Also, no accounting system was set up for small online businesses like mine. It took a while for me to figure out a system. It helped that I had taken an accounting class but it was still a little wonky. I used Quickbooks for the longest time but it was kind of confusing and it didn't quite fit what I wanted. When I did that, all of my transactions were through Paypal so I used a system called Simpleport to download all the info right into my Quickbooks so I wouldn't have to do it all manually. That was nice but it was still kind of a pain.
And then I found Outright. And it's PERFECT. It was basically made for businesses like mine and they have even collaborated with Etsy to create a system that works just right. If you have a business on Etsy, I HIGHLY suggest it. The plan I'm using right now is free and requires little to basic knowledge of accounting to set up. Really all I have to do is check to make sure all of my transactions are categorized right. You can sync up your Paypal, Etsy, and bank account so all of your transactions are right there for you. This is probably the hardest part, just making sure it all synced up correctly. Then you can see all your income, expenses, profits, etc. It's awesome. Seriously. So much less of a hassle. And for those that hate taxes, you can even do the Outright Pro plan that allows you to create tax forms to make doing tax easier as well!
Anyways, I wanted to share a little behind the scenes on how I do my accounting and handle all of my finances. I don't have the money to hire an accountant and I'm more of a do-it-yourself-er anyways so it took me some serious time to figure out how I wanted to handle all of the financial aspects of my business and work out the kinks. Here is what I found works for me:
So first, let's talk about income!
I accept online payments through Paypal and direct checkout (which takes credit cards and transfers money directly into my bank account). I used to only have a Paypal account and would just pay myself by transferring money to my bank account. But now, since I have direct checkout and the money goes to my checking account, I made that into a business checking account as well. So I now have two business accounts, my Paypal account and my checking account.
For shows, I accept cash and credit cards through a Square app on my phone which transfers money into my bank account. Whenever I'm ready to do a show, I withdrawal money from my bank account for change. At the end of the show, I deposit the exact amount of my I used for change back into my account. I usually categorize those two transactions as "transfer out" and "transfer in" since it's not really going anywhere. I then calculate how much CASH income I made from the show and deposit that into my bank account. I categorize that under "sales income" and make sure to note what show it was from and the date of the show. The key here is to make sure I make two separate transactions for the "change" and "sales income" so that I can file them under different categories and they don't get mixed up. This is what I found works for me. Although if I have shows week after week, I'll just keep the change until the next show. The money I made through Square gets deposited automatically into my bank account and I file that under "sales income" as well.
Now back to Outright.
My bank account, PayPal, and Etsy are all synced up to my Outright accounting profile so all I have to do is go over the transactions and make sure they are in the right accounting category. I have my expense and income categories all set up so that most of the time, when the transactions come into the accounting program they are already categorized into the correct place (mostly because I go to the same places so I've got that set up under certain accounts. It's only for the random weird transactions I make that I have to decide where to put them. For example, when I make a personal transaction on my Paypal account. I would have to make sure that that transaction does not get mixed up with my business transactions (for tax purposes).
How I pay myself.
When it's time to pay myself (woohoo!), I just transfer money from my bank checking account into the savings account that it is linked to. (this is if I have enough money in my checking account, sometimes I also need to transfer money from my Paypal into my checking account to cover that). I've set my accounting program to automatically list this transaction under Owner's pay/draw. So that's pretty easy. I have a specific calculation that I use to pay myself but that is kind of up to you. Personally, I add up all the income my store has made in a period of time and I have a certain percentage that I pay myself. The rest goes back to the business as a way to pay for the actual things I sold, other "fees" like Etsy and Paypal and website fees, and a little profit that can go to advertising, equipment, or more supplies. The key here is to find a balance. So it will depend on you supply costs and the amount of time you put into making the items. You want to make sure you are paying yourself enough but that enough money goes back into your business so that it is able to go forth and prosper!
Now let's talk about making payments.
I have a Paypal debit card and a debit card linked to my checking account. This is how I pay for things online or in stores depending on where I have money at the time. I can also use checks hooked up to my checking account to pay for things when I can't use a card (for example, paying a vendor fee to someone that can't take credit cards). I try to avoid using cash to pay for things because then I have to manually enter it onto my accounting (which I actually don't know how to do yet with Outright). If I use a transaction with my debit cards or check, it will already come up in my accounting program because my accounts are synced to it. So if I went to a store and bought supplies, the transaction would show up on my Outright with the date, name of the store, and how much I spent. I go to mostly the same places so I have it automatically set up to categorize it as "supplies" for like when I go to Goodwill. Other random places, I may have to go in and make sure it is categorized under "supplies" or whatever but that's not a big deal.
Checking the books.
Two times a month, on the 15th and last day of the month, I try to "check the books". First, I check all my transactions on Outright to make sure that everything is categorized right. Doing it for only 15 days makes it much easier than say, 30 days. Then I calculate my total income for the period of time. From that, I gather how much I need to pay myself and the sales tax I owe from sales I made in Texas. I have a binder that I keep everything in so that when it's time to do my quarterly taxes, I just look in there and I'm ready to go! This is also a great way to see how I've done that month (sales-wise). I know that if I didn't make much during the 1st half of the month, I need to work harder the second half to make up for it (or vice versa). Sometimes life gets in the way and I don't work quite as hard as I should so it's nice to have this to keep myself in check!
Wow, that was a lot more than I thought I would write!! Sooo that's how I do things around here. For the most part.
Please note that I am not saying that this could work for everyone or that this is the way you should do it. This is what works for me and my business. I've definitely improved my accounting over the last year and I thought I would share for anyone else that has struggled to do their own accounting.
I'm always looking for ways to improve so if you have suggestions, I'd love to hear them! Also, if you guys have any questions feel free to comment or email me (email@example.com).
And here's a little video on why you should always keep up with yo monaaay!
.... Well, now I have to go do my taxes.
*Also, I thought I should note that this is not a sponsored post. I was not endorsed in any way to say anything about the products/programs written about in this post.