Monday, February 3, 2014

An Ultra-Simple Approach to Small Business Recordkeeping

Many one-person businesses or people contemplating starting a business are daunted by the bookkeeping and tax preparation.

OF course, you could outsource to an accountant and/or use software such as Quickbooks, but I use a system that very easily, at no cost, enables me to adequately keep track of things. It won't work for everyone but perhaps it might help you:

1. To avoid paperwork and trying to collect outstanding bills, I do no billing. My by-phone and Skype clients get charged by credit card or, for my international clients, by PayPal. My in-person clients pay at the end of the session, almost always by check.

2. I record credit card payments on a 3x3 slip of paper from a standard memo cube and put it in a standard legal envelope marked "credit card receipts."

3. I record my clients' and other payers' check or cash payments in a word-processing file called "payments." At the top of that file, I wrote "DUE." Below that, "PAID." After the client leaves, I simply put their name and the amount paid in the PAID section. In the rare case when an in-person client forgets to bring a check, I'll accept their Visa or MasterCard.  In the extremely rare case in which they don't, I give them a stamped self-addressed envelope and list the amount due and from whom in the DUE section. At the end of the year, I  head a new page in that file with the new year, e.g., 2014.

4. At the end of the year, to calculate my annual gross income, I simply add up all the payments in the envelope plus those on the PAID list.

5. Throughout the year, I simply dump all tax-deductible receipts into a cardboard box, supplemented by my credit card statements and checkbook register. When it comes time to do my taxes, I dump the box onto the bed in the spare bedroom and sort the expenses according to which tax-return category it belongs in.

6. I enter my income and expenses into TurboTax and file my tax return. I used to send a draft of my return to an accountant for review but after a number of years of his saying he could find nothing that needed changing, I no longer even do that.

For me at least, that makes record-keeping and taxpaying pretty painless.

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