Bookkeeping Basics for Small Business Owners + bookkeeping software | Episode 6 - Small Business 101

- Hey there and welcome back to our free course,"Small Business 101"In today's episode, all about bookkeeping basicsWe're going to be covering first of all,the most important financial termsthat you really need to knowSecond, the most important thing that you needto do for your business finances,third different software options you havefor your business book keepingand how to choose which one is right for you

And then finally the first steps you should taketo get your bookkeeping on track for successWe all know that money has the potentialto be a stressful thing in our livesand in our businesses as wellAnd these issues are compoundedwhen our money isn't well-organizedSo in today's episode, I'm going to walk youthrough everything you need to knowabout the basics of business book keeping,so that you are on top of your business finances

Okay, so let's get startedby covering these basic financial termsthat you should know to understand your moneyand how it's organizedThe very first one is assetYour business's assets are simplythe things that your business ownsThis could be everythingfrom money to inventory to an office building

Liabilities are everything that your company owesSo if you've borrowed money from a bankor you've bought inventory on creditthen you will have the liability of the debt that you oweEquity is the part of the business that you own,or what the business owes youIf you had shareholders, it would also be the partof the business that is owed to the shareholders

If you are the sole owner of your businessthen if you subtract your liabilities from your assetsthen you'll find the total value of your businessAnd since you own the whole thing, that all is your equityAnd that ties directly into a balance sheetwhich is a financial report that youor your bookkeeper can generate for your businessthat shows your company's balanceIt shows your assets minus your liabilitiesat a particular point in time

Next up we've got cash flow and the cash flow statementSo quite simply, cashflow describes the cash coming intoand going out of your businessNow, what separates the cash flow statementfrom the balance sheetis that the balance sheet takes into account moneythat's owed to your businessand money that your business owes to other entitiesBut the cashflow statement is just focusedon the real cash money that is coming intoand going out of your business

Next, we've got the profit and loss statement,otherwise known as an income statementSo this financial report shows how much your business earnedduring a certain period of timeand how much it spent, your revenue and your expensesAnd when you subtract your company's expensesfrom your revenue, you will get your profit or your lossSo what exactly is revenue?Well, it's all the money that was paid to your business

All the money that came into your businessduring a certain period of timeWhether it was cash or whether it was purchasesthat were made on lines of creditRevenue can also be referred to as gross profit,net profit on the other hand or sometimes simply profitis what you get after you subtractthe expenses from the revenueIn other words, your business earns some moneyand you spend some moneyand how much do you have leftover that's your profit?And to wrap up these definitionsthe last two are accounts receivable and accounts payable

Accounts receivable just is moneythat is owed to your companyand accounts payable is moneythat your company owes other peopleAll right, so now that you understandwhat these top 10 financial terms meannow let's talk about the very, very most important thingthat you need to do to set your business upfor financial successYou can do this on day one of starting your business,and it's simply thisYou need to keep your business money completely separatefrom your personal money

If you don't do this, not only are you goingto create a massive organizational headache for yourself,you will also have trouble paying your taxesand you will have a lot of trouble tellinghow well your business is actually doingBecause you won't be able to seehow much money you're spending,you won't be able to see how much moneythe business is really makingSo from day one, keep this money completely separateKeep every dollar that you spendon your business coming out of just a business bank accountor at least a pile of cash that you've set asidefrom your business at the very, very least

Now you might be wondering how you can do thiswhen your business initially doesn't have any moneyHow can you spend your business's moneythat doesn't have any?Well to do that you as the owner will needto make an investment into the companySo you'll take a certain amount of money,whether that's a hundred dollars, a thousand dollarsor a hundred thousand dollarsand you are going to put it in your business bank accountand then you'll spend the money out of thereBut you'll have a record of that transaction,that investment that you made into the companyand that will be your owner's equity

So in order to keep your business money organizedand track all of your transactionsyou're going to need some sort of softwareWell, I mean, you don't have to have some sort of software,you could just use a pie

ce of paper and a pencilbut in this digital age where we havea lot of online transactionsmost likely you'll want to use some softwareSo let's talk about your different optionsThe most popular one is gonna be QuickBooks

What is nice about QuickBooks is not onlyis it a pretty good bookkeeping software,but everybody uses itAnd so if you go to a bookkeeperafter you've been in business for a whileor an accountant, most likely, almost certainlythey will be able to use your bookkeeping softwareThey will be able to just log rightinto your QuickBooks accountThere'll be no friction at all

And the same goes, if you switchto a different bookkeeper later onNow, alternatively you might consider using a FreshBooksWhat's nice about FreshBooks is a lot of peoplelike it a little bit better than QuickBooksand it's significantly more affordableThe problem is that not everyone uses itand so some bookkeepers or accountants might not be familiarwith it or might not support it

Another alternative you can consider is called Wave,which is a completely free bookkeeping softwarethat works very wellNow it doesn't have quite as advanced functionalityas FreshBooks or QuickBooks doesand you definitely will find that most bookkeepersand accountants won't prefer itAnd many won't support it at allsimply because it doesn't havea lot of the more advanced functionality that they'll wantHowever, if you're just getting startedand you're on a budgetand you are going to be doing everything yourselfthen feel free to go ahead and use Wave

The final option I wanna sharewith you is actually my favorite,my recommended option when you're first startingand that is a simple spreadsheetNow you could use any spreadsheet software,personally I like using Google Sheets, but any will doAnd you can simply track your expensesand your revenue on this spreadsheetI like tracking these two things separate

So I'll create a sheet that has a tab for revenueand then another sheet that has the tab for expensesAnd later on, you can add additional sheets as neededif you want to track other aspectsof your business financesWhen you're first starting outyou will have a pretty small number of transactionsAnd so logging in and manually enteringeach of these isn't going to take a whole lotof your time or be a big hassle

And I really think that you will havethe best understanding of your business financesand will be in the best position to be ableto be the leader of your company,if you understand where every dollar is coming fromand where it is goingNow, of course, if you're someone who just hasa really hard time tracking your moneyand staying organized then you might wanna use oneof these other softwares like FreshBooksor Wave or QuickBooksSo that things can be a little bit more automatedbecause I'd rather have you be organizedthan have you not track your books at allBut ideally I'd have you be organizedand also be closely in touch with your finances

So finally, let's wrap this up by talkingabout the first steps you should taketo get your business finances on trackFirst, I want you to go to the bankand open a business bank accountYou can do this locally or onlinebut by opening a business bank accountyou will be able to easily keep your business money separatefrom your personal moneyNow, if you are first starting outand you haven't even registered your business name yetthen it can be difficult to open a business bank accountbecause a lot of the time they will wantyour business registry number

However, as an alternative, you may be ableto open simply a separate personal bank accountthat you can use exclusively for your businessLong-term you'll probably want to opena real business bank accountbut at least this way your money will be separateand a lot more organizedAnd then the second thing I would recommend you do rightat the start is to create a spreadsheetto track your financesNow, if you know you're going to be usinga different software then you can go aheadand set up your account with that software option

But if you're not quite sure which one you wanna pickor you just wanna stick to the spreadsheetfor a while, set up your spreadsheetsetting up that tab for revenue and a tab for expensesAnd then every single time you have any sortof transaction log in thereand instantly record those detailsThis video is episode number sixof our free series, "Small Business 101"If you are working to start your own businessor you're planning to do so in the near futurethen be sure to subscribe to the channel,to get access to all of our future episodes

For a complete guide to setting upyour business finances from scratch,join us inside our Startup SocietyMembership is very affordableand inside the program we have a complete module devotedto this exact topic, setting up your business financesTo create this module, we've partnered upwith a Virtual CFO Susan Boleswho explains everything so simply and easilyand yet covers everything you need to knowStartup Society membership starts at just $49 per monthand includes access to our entire platformof business training courses

So it's a great affordable way to get accessto the information you need to turn your businessinto a successAll right, well that is everything for today's videoI hope that you enjoyed this and found it really helpful,if you did, be sure to give it a thumbs upand I'll see you guys back here again next week(soft upbeat music)