10 Startup Tips
Chapter 20: A Guide to Accounting Bookkeeping
Most businesses have problems with bookkeeping.
Good entrepreneurship is starting with a new idea,
things in a larger vision.
A good bookkeeping job is to keep detailed,
clear records and all figures to match.
You need to have both in a business.
While a good accounting job won’t make you successful,
not paying attention
or paying little attention to it can bankrupt a successful business.
I recommend hiring an accountant,
it’s not too expensive.
It may seem wasteful at first,
but in the long run it will save you a lot of things,
including peace of mind when everything is in order,
which is well worth it.
However, it is important that you learn the basics of bookkeeping.
Basic accounting knowledge
The golden rule when setting up a system is to be simple and methodical.
Do I need a software?
You can do manual bookkeeping with simple accounting tasks.
However, there are also quite a few simple accounting software that can help you.
I use QuickBooks and Sage Instant software.
Don’t use anything too advanced if you don’t really need to.
You can easily upgrade the system over time.
Step one: Save the output invoice
You will need an invoice
or receipt for any sales.
On the invoice or receipt,
you should write the full date,
name,
address of the company and also the tax code
(if you register for a value-added tax code – VAT).
Save these invoices by serial number in a file.
When an invoice is paid,
write “paid” on top,
the date and number of the check received.
You should save files by year.
Step two:
Save the input invoice
Record and store all your purchase receipts,
from parking tickets,
gas bills,
tea,
newspapers,
magazines, etc.
Always ask for a value-added invoice.
Many places like restaurants and gas stations won’t bill you
if you don’t ask.
Retail invoices are not VAT invoices.
Please number the invoices
(in the order you received them)
and save them in the input invoice file.
Not everything is tax refundable.
See the next chapter on taxes to understand what you can
and cannot claim for a refund.
However, the advice of one of my accountants is:
Entrepreneurship Secret: Ask
If in doubt, request a tax refund.
Step three:
Enter the data in the accounting book
Enter details of purchases
and sales in the accounting books.
For sales, you need to record:
• Day
• Some bills
• Customer name
• Value for money
• Value of VAT
If you apply for a tax identification number,
you will need to include the amount
before tax and after tax.
For purchases, record:
• Received date
• Supplier Name
• Number of goods delivered
• Value for money
• Value of VAT
If you apply for a tax identification number,
make a note of the amount before tax and after tax.
The next column explains the content of the goods you buy.
Basically, you can get a quick breakdown of your direct supply
and total cost statistics.
Step Four: Check the balance sheet
You’ll have to look at all your balance sheets every month
and actually check that the receipts
and payments are exactly as they are in the ledger.
This is important
because it helps you find errors in your bookkeeping.
Every written check
or payment you make needs to be calculated.
If there is a payment from your account without an invoice,
you need to make a note in the ledger.
Cash on hand
Recording cash receipts
and payments makes your books very erratic.
It’s hard to keep track,
and you’ll find that the money dwindles out of your pocket
without showing much in the account.
Tax inspectors are usually very wary of this.
They know which types of businesses usually use cash
as well as which types of purchases usually use cash.
Therefore, they will check the accounting books extremely hard
to find evidence of this activity.
One solution is to use a credit card
to pay for your business expenses.
Another option is a cash safe.
You can use cash to pay for small purchases
as long as you keep a clear record of receipts and expenses.
However, if there were only 50 cents left in the safe,
it would be like the Spanish Inquisition1 in the office.
Hire an accountant
A good accountant will save you more money than paying them.
This depends on finding a good bookkeeper,
but perhaps more importantly,
you need to employ the right accountant.
Here are tips for using an effective accountant:
Don’t let the bookkeeper do all the day-to-day bookkeeping for you.
Don’t pile up hundreds of small bills at the end of the year in a shoebox under the bed.
The bookkeeper can get the job done,
but it won’t match 100%,
and that’s also very expensive.
Don’t let your accountant make your business plan
You are the “owner”
and you must understand everything in that plan.
If needed, you can enlist their help
with some complicated financial matters,
but this should be your blueprint.
Don’t try to do everything
and complete all your taxes,
expenses, depreciation, etc. at the end of the year.
You can do this but you probably won’t get it right.
And one more thing, this life is short but beautiful.
Don’t just ask them when it’s too late.
Take advantage of their knowledge right from the start
for advice on how to do business legally,
when you should calculate your annual taxes,
what types of expenses should be charged,
and many other similar questions.
It’s a lot better if you have a simple,
careful ledger and give it to your accountant at the end
of the year so they can match their accounting talents
with these numbers.
How to find a good accountant:
The best way is to have a referral.
Keep going to business events
and ask successful entrepreneurs with businesses of similar size
and type to yours how they use accounting.
Or alternatively, ask a business support organization,
bank manager or lawyer for a recommendation.
With what happened with Enron Corporation,
your accountant doesn’t have to be interesting and attractive.