No Better Time To Start Bookkeeping

This is the time of year when we are all getting our finances in order. 

Take a moment. I want you to picture your house immaculate! Everything is in the right place, nothing is cluttering the countertops… And think about how much easier it is to keep your house clean once it’s already CLEAN! That’s a lot like getting your bookkeeping ready at the beginning of the year. And that’s why there is no better time than doing your bookkeeping RIGHT NOW. 

Doing your bookkeeping right now is very akin to having a clean kitchen, eating a bowl of cereal, and quickly being able to rinse it out and toss it in the dishwasher. When we don’t have a bunch of transactions to sift through, we can quickly categorize what’s there without a whole lot of effort. PLUS, when we’re doing it really quickly after the transactions happen, we can still remember what the transactions were for. BUT, just like if you don’t immediately rinse out that cereal bowl, the food gets stuck and crusted on it and it’s more tedious and time consuming to clean. This little scenario is similar to your bookkeeping. If you aren’t taking care of your transactions on a regular basis then you’re going to forget what you bought. I know that sounds silly, but just look back through your transactions and see if you can identify one recorded 6 months ago. You’ll be surprised to see how long it can take you to figure out what the transaction was for, even if it was a large dollar amount. 

Now, have you ever seen the tv show, Hoarders? Imagine entering a home where someone has just been hoarding stuff. There’s mess everywhere in places that you couldn’t have even possibly imagined. That is what it’s like when you are doing your bookkeeping in December for the entire prior year! 

The moral of the story is that both of these houses need to get cleaned either way. There is just a different amount of time and stress you’re going to have to endure to get them tidy. It’s the same with your bookkeeping. If you own a business, bookkeeping ISN’T optional. Point blank – It’s gotta be done either way. You choose. Start in January and keep it up or procrastinate and enjoy a stress sandwich and a tall mocha time commitment cleaning up that hoarder house. 

What is Bookkeeping?

A common misconception around beauty business owners is that bookkeeping is taxes, BUT bookkeeping and taxes are two entirely separate things. 

Here’s the difference. Bookkeeping is the process of organizing your income and expenses, and then separating them out by category. Once you have everything separated out, then you do what’s called a reconciliation. A reconciliation is simply making sure that you’re not missing any transactions and that you haven’t duplicated any transactions. Once your reconciliation is complete and all of your transactions have been categorized, then you’re done with your bookkeeping for the month!   

The reason why people don’t necessarily realize that bookkeeping and taxes are two entirely separate things is because you have to have your bookkeeping done to be able to file your tax return. The first thing your tax accountant is going to ask for is a profit and loss report. A Profit and Loss Report is the end product of having your bookkeeping complete.  

How Much Time Should Bookkeeping Take a Beauty Business? 

Okay. Let’s talk about time commitment! If you want to consistently keep up your bookkeeping in a system like QuickBooks, it should take you, literally minutes, each week. 

If you’re a small independent beauty pro, you can easily get your bookkeeping done within an hour each month. Especially if you’re categorizing transactions every single week for maybe 10 or 15 minutes, it’s a very quick process at the end of the month to close everything out and reconcile. 

If you haven’t already…go sign-up for QuickBooks! I recommend the Simple Start version because it’s gonna work for the vast majority of Beauty Professionals. Once you’ve signed up, go ahead and link your bank accounts. QuickBooks will automatically import all of your transactions. It depends on your bank, but usually they will import the last 90 days. And guess what? Since you would start in January like I’ve mentioned, you don’t even have to go back to 90 days, you can simply go back to January 1st. Easy peasy. 

Maybe you’ve started using QuickBooks, and you’ve Googled, and you really can’t figure it out. I recommend you join me in Beauty Bookkeeping where I go over all the things you need to know about QuickBooks so you can do your bookkeeping with confidence! And most importantly, so you can get that profit and loss statement to figure how much to pay yourself and how much to save for estimated taxes. Once you nail this process, you can easily pay yourself on a regular basis and never be surprised by a tax bill. 

Why You NEED a Business Bank Account

If you care about your time at all, you WILL get a business bank account. There’s an accounting term we like to use and it’s called “intermingling”. What we don’t want to do is intermingle business and personal transactions. Why?

It becomes a legal problem if you have an LLC and are putting personal expenses into your business account. It essentially negates all of the legal protections that the LLC was supposed to give you. 

From an accounting perspective, it’s super important that you don’t waste your time. If you have to go through twice as many transactions because you have a bunch of personal transactions coming into your QuickBooks, you’re just asking yourself to hate it because it’s taking you too long. 

Moral of the story. You need to get a good system in place so that you can spend as little time as possible actually categorizing your transactions. 

How Do I Handle Last Year’s Books?

Now you might be thinking. Okay thanks Michelle, great. I’ll go ahead and do that for this January, but guess what? I have a hoarder’s house! I didn’t do any of my bookkeeping last year, I have no clue where to start or what to do. 

Listen…you can’t change the past. We can start getting overwhelmed and thinking about all the things that have to be done, but it’s a complete waste of time because we can’t do anything about it. All we can do is choose what we are gonna do now and in the future and make a better plan. SO. Here’s what I recommend – STILL get a QuickBooks account and do everything I’ve said starting January and onward.

I recommend a few different options to handle last year’s transactions, but it really depends on the size of your business and what you’re looking for. 

A simple spreadsheet is something you might consider to get all those transactions organized for your taxes. This is a good option if you have less than 50K a year in revenue. 

To do this, go to both your bank account and credit card account and pull all of the income and expense transactions into a spreadsheet. Then insert a category next to each one. For example: income, supplies, insurance, etc. You might even consider pulling a Schedule C from a tax return, viewing the categories listed, and then using those as a stepping stone for the categories you choose in your spreadsheet. This will allow you to quickly go through your transactions and assign them a category. Then you can pass it along to your accountant to file your tax return. This method is ONLY good if all you’re trying to do is file a tax return and you don’t have thousands of transactions to go through. 

QuickBooks Automations are helpful if you have an overwhelming, excessive amount. 

For example, you can set-up a Rule. Let’s say you have a cell phone bill every single month from Verizon. You can set-up a rule that says anytime I have a bill from Verizon it’s going to be my cellphone. QuickBooks can then automatically categorize them accordingly. So once you have a lot of transactions it pays to have QuickBooks automations to allow you to categorize quickly. This option is better than a spreadsheet because you have a good way to compare your data. A spreadsheet doesn’t. So if you’re growing as a business, it’s very helpful to be able to check and say: 

Okay, this year I had $70,000 revenue and last year I had $58,000. Oh wow, I’ve grown 21%.

Not only is that helpful in revenue, but it also helps to see how your expenses are growing and comparing as well. So when you have everything in QuickBooks together, it’s very simple and fast to pull reports that show your numbers last year, this year, on a month to month basis, etc.If you want to be able to take your prior year’s information and use it to grow your business, you’re gonna want something more robust than a spreadsheet. That said, if you’re hitting the point of having more than 50K a year in revenue, consider using QuickBooks for last year. Hear me out. 

You’re gonna have to import all year’s prior transactions and some banks might not automatically go back to January 1st. This can make things a little bit tricky, but all you have to do is download a spreadsheet from your bank and then import that spreadsheet into QuickBooks to get all your missing transactions. 

Hiring a Bookkeeper may be your best bet if going through a full year’s worth of Bookkeeping is something that sounds really overwhelming and you’re too big to do it through a spreadsheet. Making this decision is BIG because it’s usually not a short-term relationship. You’re gonna want to use their services in the future so make sure you take your time, interview them, and find the right person. If you start at the beginning of the year, you can expect your bookkeeper to take a few months before they are able to get your books fully cleaned up. January is a very busy time for bookkeepers and this process is not quick. They might not even be able to start on new client books in January, meaning you may get pushed back a month or two. So, expect to file an extension for your tax return. The cost of a Bookkeeper varies. I would say you’re looking at a minimum of $150 a month if you’re a really small business, but this price range can go up to the thousands for larger businesses. 

No matter what you do, bookkeeping is not optional. It has to be done to file your tax return. The best thing you can do is make a decision based on what’s best for your business and proceed accordingly. If you’d like help getting your bookkeeping together and you still want to DIY, please join us in Beauty Bookkeeping where we can support you and help you learn QuickBooks, to not only get your books in order, but also get those taxes filed this year!