by Abram Mcconnell

Created on: September 23, 2008

So you've started your own business, congratulations! As you begin building your business by balancing marketing, sales, and a (hopefully) growing client list, you may be wondering about the most effective, efficient, and simple method of accounting for your new job. Although there are several excellent computer programs on the market that can help you manage your businesses finances, many people are discouraged by confusing and intimidating functions that ultimately, take away time you wish to devote to your passion. There is an easier way.

Until your business sees a sizable growth spurt, a simple checking account is really all that you need. All revenue generated by the business enters the account as income. All income generated by the business is deposited into the account and therefore represents revenue. Any money spent on supplies, marketing, and other business expenses is paid out of this same account. By default, whatever money is left at the end of the month is considered profit. Your bank statement then becomes your accounting ledger, allowing you to easily and quickly review the three most important aspects of accounting to a small business: revenue, expenses, and profit.

When it comes time to draw your paycheck, be sure to actually write a check to yourself and deposit into a separate checking account. This provides a paper trail for auditing purposes. When you cut your paycheck, be sure to also set aside 25% of that check into a separate savings account to cover taxes. As a small business owner, you will be expected to file quarterly estimates with the IRS and it is much easier to set aside your taxes over time.

Over time, you may want to practice more in depth accounting practices in order to better account for payroll, inventory, or other aspects of your business. When this time comes, a computer software program such as Microsoft Money or QuickBooks may be perfect for you, but until then, this simple means of accounting will suffice.

There are a few more tips to following this simple accounting style. First, it is always advised to develop a strong relationship with a very effective CPA in your area. The wealth of knowledge that he/she will bring to you will prove invaluable. Secondly, make the conscious decision now to never use your personal account for business purposes or use your business account for personal purposes. There are very important reasons to separate the two and keep them separate. Thirdly, remember that this new venture is a result of you following your passion. While accounting is tremendously important for your business, do not allow the practice to steal your zeal of what you love to do. When executed correctly, this style will provide you with a simple and effective method for accurately accounting for your businesses finances.

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