Welcome to a new series here on the blog, where we’ll cover a term or concept that can help as you set up, build and grow your business. Each week will bring a new blog post as we move through the alphabet. This week we’ll cover A is for Accounting – accounting basics.
Accounting is the recording of financial transactions. The reports created from accounting provide a snapshot of the strength or weakness of your business. Accurate record keeping is critical when running a business, otherwise that snapshot will be skewed. Most beauty business owners start out handling our own books and as we grow, find it necessary and important to hand this task over to someone else with more skill and interest in this area. I love looking at accounting reports and charts to get an overview of how my businesses are doing and to see what can be improved, but the daily entering of expenses and payments drove me bonkers. It was also time consuming, so I was happy to outsource it to free up time so I could focus on other areas of my business.
Accounting terms include among others Cash Flow, Cost of Goods Sold (COGS), Expenses, Revenues, Assets and Liabilities, Profit and Loss (P&L). We’ll explore some of these in depth through this A-Z series. But at its basic core, accounting focuses on transactions called debits (i.e. expenses) and credits (i.e. sales). Of course, this is a very simplified explanation, as much more goes into and is considered a debit or credit. Books need to be kept in balance, so that every debit is matched to a corresponding credit entry.
Accounting systems for makers can range from a simple spreadsheet on up to a powerful online accounting system, such as Quickbooks. I like Quickbooks (well, for my bookkeepers to use it) because it can pull in data from PayPal, Square and other apps one might use to sell bath and body products in person or online, in addition to your bank account and credit cards. This provides a clear overview of all sales channels and expenses and helps you see just how strong or weak your business is at that point in time.
Most creative entrepreneurs cringe at the thought of doing bookkeeping, since our brains are often less than thrilled at handling linear tasks. If this is you, don’t put off entering receipts and sales – it’ll only pile up and will end up taking days or weeks to get everything entered. Find a trusted family member or friend to help you get started and set aside time every week to focus on your accounting tasks so that the work pile doesn’t get out of control. This may be the first item in your business to outsource, so that it is off of your plate and you have the comfort and security knowing that someone is handling these tasks for you.
Do you keep your own books, and if so, what’s your favorite accounting system or program? Share in the comments below.
Image courtesy of Stuart Miles / FreeDigitalPhotos.net