Hi! I’m Lauren, the dyer behind Old Rusted Chair. I’m taking over Krista’s blog to talk a little about a concept that scares most small business owners: Bookkeeping! I have a bachelor’s degree in accounting and more than 10 years worth of experience ranging from handling accounts payable at a grocery store to being controller at a tea company. In between I’ve done bookkeeping for my old LYS and helped a startup in the natural food industry build their accounting department.
Before we dive in, all of this is assuming your business is up and running within your state andcity guidelines. If you’re not sure, go to your state government website and find out what you need to do to operate a business there. States may have different requirements for different types of businesses. My business is a sole proprietorship, which means, in Tennessee, I had to register at my county clerk office. I also had to register with my state revenue department so I can pay forward any sales taxes I collect. Tennessee does not have a state income tax, but I do have to pay a business tax to the state and city.
On average, I spend about an hour a month on my bookkeeping work. I break down my tasks into weekly, monthly, and quarterly tasks to keep things manageable. First, you need to choose your preferred method of record keeping. I currently use QuickBooks Self-Employed (QB). It’s simple to set up and use, and makes it easy for people who aren’t accountants to keep track of their accounting. It can link to your bank, PayPal, Etsy, Stripe, and other accounts to keep track of all of your income streams. The ability to include all of these income sources made it very easy for me to transition from Etsy to Squarespace Commerce. It does have its downsides, but in my case the downsides aren’t worth the expense or effort of having a different software. For example, the expense accounts listed in QuickBooks are preset; you cannot change them or add new ones. I think this is a big misstep, because I’d love to have the flexibility to add a few new accounts so I can break out my expenses in more detail. Overall, for the price and convenience, I’m sticking with it for now. There are other options out there, such as Xero, Freshbooks, Excel, and even Google Sheets. Do some research and find out what works best for you.
Let’s move on to my workflow. Breaking tasks up makes it easy to fit them in my schedule, and sets good habits for staying on top of the work. I prefer to do my bookkeeping first thing in the morning with a fresh cup of a coffee. Then I can spend the rest of my week focusing on the creative part of my job and not have these small admin tasks lingering over my week.
Weekly: I categorize transactions in QB. This takes me about 10-15 minutes depending on how busy my week was. The majority of my transactions are sales and transaction fees, but I also purchase supplies and make donations. Recording and categorizing these weekly means everything is fresh in my mind (and easy to find in my email) so I can quickly move through transactions. It’s much easier to find what that $21 charge from Amazon was when the transaction was last week and not four months ago. Additionally, I add any mileage for trips to the post office or other business-related car trips. This is also a great time to place orders for any supplies you need.
Monthly: Pull sales numbers from Squarespace. I have a general idea of what colors and bases sell best, but I like seeing the numbers. I make a monthly donation to Planned Parenthood based on sales of one of my colorways, Rebel Girl, and this report lets me know how many skeins sold so I can make my donation accordingly. If you’re selling off of Squarespace you can find this information under Commerce > Orders > Export (in the upper right corner). Etsy users can find this under Shop Manager > Orders, then scroll to the bottom to download a CSV file. I also spend a few minutes looking through my supplies and seeing if I’m running low on any dyes or other materials that I don’t order as frequently. I also pull a profit and loss statement from Quickbooks.
Quarterly: Tax time! Most people I talk to wait until April to deal with this, which usually isn’t the best decision. You should be making quarterly tax payments if you expect to owe more than $1,000 for the year, according to the IRS . The IRS wants their money and could penalize you for not paying quarterly. Think back to the days when you received a paycheck from an employer. All of those tax deductions from your paycheck were forwarded by your employer to the IRS on your behalf. Now that you’re your own employer you are responsible for paying the IRS. There are a few ways to go about doing this. You can either pay directly to the IRS online or by sending a payment in the mail. It’s also worth checking to see if you can pay through your accounting software. Either way, you will need to register on the IRS website. QB estimates my quarterly taxes based on my net income (total sales minus total expenses) and my current tax bracket. I file a joint return with my husband, so I include his information for a more accurate number. After a quick set up I am now able to pay the IRS directly through Quickbooks by clicking a few buttons.
Another tax you need think about is sales tax. When I ship or sell to a direct customer in Tennessee I am required to collect 7% state sales tax. If my customer is in Davidson County I need to collect an additional 2.25%. Your sales platform should have the ability to enter in your state and city sales tax information so your customer will be charged automatically. If you are sending wholesale orders to a LYS in your state the rules are different. I drop off shipments to my LYS, but do not charge them sales tax. This is because they will be collecting sales tax from their customers and paying it to the state. If you’re selling to a LYS in your state you can ask them for a copy of their resale certificate (if applicable in your state). I forward sales tax payments to the state quarterly, using sales tax information from the monthly sales report mentioned above.
Finally, I need to pay business taxes to the state and city. I won’t go into details on this particular tax because your mileage will vary greatly based on what state you’re in. It’s best to check with your state revenue department to figure out what, if anything, you owe and when you owe it.
Bookkeeping doesn’t have to be scary or overwhelming. By breaking tasks down into workable pieces you’ll find a good rhythm quickly. If you’re starting from scratch I recommend that you stay current on your new transactions and spend an hour at a time working backwards. You don’t need to get the backlog of transactions done in one sitting. Breaking it up over a few days or weeks will help your sanity in the long run.
Thank you, Lauren, for this amazingly informative post!