27. The Simplest Bookkeeping System for Your Business

Is your bookkeeping system a shoebox? A file folder?

A bookkeeping system provides a way to record and classify transactions and a shoe box or file folder can't do that.

But not everyone needs (or wants) a full featured system like QBO. And bookkeeping doesn't have to be complicated.

🎧 Tune into this week's episode where I talk about the simplest bookkeeping system. You'll learn:

 ▶️ Why you need a bookkeeping system, even at the very beginning
 ▶️ The 4 requirements of any bookkeeping system
 ▶️ How Simple Financials solves your bookkeeping in the simplest way possible

Mentioned in this episode:

• Get your Simple Financials Bookkeeping template
• Continue the conversation and book a free call

Other resources:

• Get Your 30 Days of Money Mindset Prompts

For the full show notes, including the transcript, go to www.carlamoats.com/podcast/episode27

DISCLAIMER: The information in this podcast is for informational purposes only and does not constitute an accountant-client relationship. While we use reasonable efforts to furnish accurate and up-to-date information, we assume no liability or responsibility for any errors, omissions or regulatory updates.

Transcript

Welcome to Purposeful Profit, where I help you take your business to the next level. I'm Carla Moats, Finance and Strategy Coach, and Fractional CFO for high achieving female entrepreneurs. I'm here to empower women to build wildly profitable businesses that give them the freedom to live their dream lives. I'll use my more than 30 years of finance and consulting experience to take the mystery out of your finances and help you make more money, and go after your next big thing.

Hi there, and welcome back to the Purposeful Profit Podcast. Whether you are a returning listener or a first-timer, I'm really glad to have you here. I'm Carla Moats. I'm your host, and I am a financial accounting expert and a financial whisperer to female founders. I simplify their business finances so they could put more money in their pocket because what matters isn't how much you make but how much you keep.

So back in 2022, I was invited to give a talk on business finances to a group of coaches. Some of them had been in business for 3 or 4 years, but the common theme among all of them was that they were all still striving for their first 100K. Several of them had a business that was a side hustle. When I did this presentation, I kind of came in and talked to them about what everybody needs to know about finances and doesn't want to ask. I think that was the title of my presentation.

I went through things like, don't co-mingle your personal business; set up separate bank accounts or credit cards. I talked to them about an LLC versus an S-Corp. I talked to them about taxes, and then we went to talk about bookkeeping. And I kind of innocently asked them what kind of bookkeeping system they had, and people started holding up file folders in the video or dropping comments in the chat that said, “LOL. Does a shoebox count?” And somebody said, “All I do is scan my receipts in, and I put them in a file folder, and I just deal with it at tax season.”

I'm going to tell you what I told them, if that sounds familiar to you. Businesses have a bookkeeping system, hobbies do not. So, do you want to have a business or do you want to have a hobby? When we start a business, businesses need a bookkeeping system. It's how you know where your money's going. It's how you know where you stand, and it also eliminates a lot of anxiety, and it eliminates the rushing around at the end of the tax season because one of the things I see business owners do, especially in the service space, is that they don't do anything really throughout the year. They might look at their revenue. They have Stripe reporting or PayPal reports. They may look at their revenue throughout the year, but they're waiting until the end of the year to look at where their money is going, how they're using their money to estimate what their taxes should be. Before your tax guy ever comes back to you, you should already know roughly what your tax liability is going to be for the year. Shoeboxes, file folders, even receipts that you're saving—these do not count as a bookkeeping system.

But the other thing is that, while I talk a lot on here about QBO, because that's what I use with my bookkeeping and accounting clients, the reality is that not everybody needs QBO. QBO has about 80% of the business market out there, and they market themselves as DIY to all levels of business. And you, in theory, can use DIY or QBO from the get-go. But the reality is that not everybody needs it. Not everybody wants it. But you need to have some kind of system.

When I came out of that meeting, people told me they found a lot of value in the discussion, and when I started talking about bookkeeping, they were like, “This sounds great, but I don't even know where to start.” From that, I spent a few hours the following week and created Simple Financials, a Google-based bookkeeping spreadsheet template, and I have updated it a few different times. This system is really the easiest and simplest bookkeeping system for your business that you can use. It doesn't fit all businesses, and we're going to talk about that today.

In this episode, you're going to learn why you need a bookkeeping system even at the very beginning. I'm going to talk to you about the four requirements that any bookkeeping system must have. Then, I'm going to talk about financial systems, how Simple Financials can solve your bookkeeping, and the simplest way possible. So let's dive in.

Let's talk about a bookkeeping system. I think most people know the basics of what a bookkeeping system is. It's basically a system for maintaining your business's books, including recording and classifying your transactions. Your shoebox or file folder does not meet this definition because it's not recording and classifying transactions when you throw that receipt into a shoe box. Nothing's happening to it. There's no report being generated. There's no one going in and saying, “It's just an auto expense or a meal expense.” You can't run a report out of a shoe box. We want to treat our business like a business. You don't have to have a fancy system or a fully functioning system. QBO, Xero, or even a more limited functionality system. I've talked before about Wave or a HoneyBook. Those are just software that facilitate bookkeeping.

A spreadsheet can be your system if it's done right. Every bookkeeping system that you use—I don't care if it's QBO, I don't care if it's Wave, I don't care if it's a spreadsheet. It needs to have a minimum of four things. These four things are:

Number 1, it needs to provide you with a way to record transactions. This can be manual or automated, and if you have low volumes, you don't need the automation. I'm going to define low volume as roughly 75 transactions or less a month, but this could be totally subjective. One of the advantages of systems like QBO and Wave is that you can basically link them to your bank account, authenticate, and they'll automatically bring in your transactions, so you don't have to manually enter them. But if you're low-volume, the efficiencies you're going to get from automation are going to be minimal.

Number 2, it needs to have a way for you to categorize transactions. This is how you take your transactions and group them in a meaningful way that helps you understand where your money's going. It helps you group them for tax purposes, and it helps you understand how you're spending your money.

The third thing it needs to do is have a way to summarize that information and have some kind of basic reporting that shows you your income and expenses. If you go out and create a spreadsheet on your own, which a lot of people will do, well, that'll usually be their first step. Let's just say at the end of the year, they wait, they take all the receipts, and they enter them into a spreadsheet. The problem is that the spreadsheet isn't giving them any type of summary of information. It may give them a grand total, but it's not giving them their own P&L. Even if you're using a spreadsheet, I always advise people to have a spreadsheet that's at least giving you a profit-loss statement.

And the fourth one (which is the most important step), get your pencil and write this down; it has to be a system you use. It doesn't do any good to have QBO if you're not going to use it. I've actually talked to two people in the last week who purchased QBO some time ago and have still done nothing with it, and another person who has used it for a couple of years, and then she said, “I've quit going in, and now I've got like nine months of activity to process.” 

The best system is the one you will consistently use, and that's where the spreadsheet comes into place, because a lot of the people who come to some financials don't need or want QBO, or in some cases, they've actually used QBO and they've decided it's overkill for what they need.

Most of us, especially as business owners, use spreadsheets all the time in our daily lives. So let's talk about what is Simple Financials. Simple Financials is a Google-based spreadsheet template. It uses Google Sheets. You pay for it once, and you are done. You can also use it for personal. I've had a couple people who have taken the template and duplicated it, and they use it to track business and personal. Super easy to use. If you know how to enter data, you can use it. That’s all it requires.

It can move from one cell to another, click on a dropdown, and pick something off of a dropdown menu. Really, just super easy. It requires no accounting knowledge or special software. We're going to talk a little bit about that. You're going to have a Google account, and if you can navigate a spreadsheet, you're good to go. You're going to manually enter your transactions, and then you're going to categorize them using dropdowns.

These dropdowns are aligned with Schedule C of the 1040. I don't recommend this for people who are filing as an S-Corp. I recommend this for people who are sole proprietors, and sole proprietors are reporting their income and loss on Schedule C of the 1040. One of the things I did when I created this spreadsheet was create categories that are aligned with Schedule C of your 1040. Literally, when you're done, you'll print out one of the pre-populated reports in this file, and that is what you or your tax preparer will use to prepare your Schedule C.

It has the flexibility to handle multiple bank accounts, credit cards, PayPal, and yes, even if you are still commingling business and personal. Separating business and personal. Separation of church and state is one of the first things I preach. But the reality is, not everybody's doing that, especially in these early stages. So, if you are commingling business and personal, it can handle that.

The best part of this one is that it has pre-populated reports that update automatically to help you know where you stand. One of these reports is what's called an annual profit detail report. You can hand this off to your tax preparer, and they can prepare your Schedule C, or if you're one of those people who's still doing your own tax returns, you can basically take this report, and you're good to go with your Schedule C. One of the things we talked about was requirement number three, that you need to have a way to summarize information and have basic reporting, and Simple Financials does that for you.

Let's talk about who this is for and who it's not for. So first, let's talk about who this is not for. If you have a business with inventory or W-2 payroll, this isn't really for you. If you have a high-volume business, like over 75 transactions total in a month, that's the level at which I think automation for efficiencies becomes more useful now.

High volume and low volume can be subjective. Somebody out there may think, “Well, 25 transactions is high volume. I don't want to manually enter anything more than 25 transactions.” To be clear, if you want to be able to bring things in automatically from a bank feed, you have to use a Wave, a QBO, or a YNAB. It's not for more complicated businesses. If you've got multiple revenue streams you want to track, or if you want to track expenses by department or anything like that, this isn't for you. If you have accounts receivable or accounts payable that you want to be able to track in your bookkeeping system, this is not for you. This is basically a true cash flow tool—money in and money out. 

Similarly, if you are a business that uses accrual accounting, like a construction business, maybe a business is carrying inventory (I would say most small businesses are using cash basis accounting), but if you use accrual accounting, this isn't for you. Also, I don't recommend it if you have an S-Corp. S-Corp has more involved tax return preparation requirements (you file an 1120-S if you're an S-Corp), so I recommend you move to regular accounting software.

If you can afford and want to invest in a longer-term, more scalable solution, this isn’t for you. I talked to somebody last week who is in the early stages of her business, but she'd had a business before, and she just wants to go straight to QuickBooks. She wants it set up, she wants it set up correctly, and she just wants to do that from the get-go, and she can afford that. The spreadsheet wasn't a good option for her.

Generally speaking, I say that if you're at 250 to 300K in revenue or higher, this probably isn't the tool for you, because at that point you may be looking at outsourcing your bookkeeping to a bookkeeping firm, and your volume is probably higher. You're probably getting more involved in complexity. You're maybe adding payroll. For all those reasons, it's usually 250 to 300,000, but if you've managed to build a model that's half a million dollars—a relatively low-volume, simple business model—you could still use this. So, that's who it isn't for.

Who is it for? I designed this specifically for these circumstances. If you're a business owner that has no existing system and you want an easy system that makes tax prep a breeze, this is who I'm aiming this at. You're filing your taxes on a cash basis. You don't carry any physical inventory, and you do not have any W-2 employees. You have a low transaction volume (less than about 75 transactions a month). You have a fairly simple business model. Typical users of this are coaches, professional organizers, massage therapists, realtors, or consultants. Typically, you're only going to have 1–2 offers. You don't need or want a full-feature bookkeeping system. Maybe you've looked into QBO and decided it's too much. Maybe you’ve looked at QBO, and your nervous system pops in, and it’s overwhelming. If you want to keep the text easy and you want a very little learning curve, then this is for you.

Revenue-wise, I generally find this is for people who are brand new in business, up to about $250,000 in revenue, not filing as an S-Corp. So, that's who it's for and who it isn't for.

How does it work? Once you pay for it on the website, you get an instant download, and then the file has multiple tabs on it. You're only going to enter information on one tab. It has a transaction register, and the transaction register is basically where you'll enter, kind of like a check register or something similar to a cash book register. You're going to enter your transactions, and you're going to have dropdown categories—they're aligned with Schedule-C.

When you enter the transaction, you're going to enter who you paid it to in the "Payment method." Then, you have a little dropdown that says, "Is this an auto-expense?" or "Is this a travel?" or "Is this training and education?" It has ten in my current version. It automatically populates reports. It has that annual detail report, and there's a summary report, then there's some monthly reports. There's a report to look at things by vendor or by customer. It's ten different reports you get. 

You also get a four-part email course. Part 1 is prep to use it. It's just an overview of the template and tells you what you're going to need to start entering information in your transaction register. Then, there's a day where we do "How to use the transaction register?" Then, we have a session where we do "How to use the reports?" I go through each of the reports to see exactly what they're used for and how to understand them. Then, I do a fourth one on troubleshooting and maintenance. I'm going into this one and answering the most typical questions that people come to me with. You have permission to use this for individual business or personal. You just can't provide it to others. If you have it and you operate three different businesses, you can use it for all three businesses. You don't have to pay each time. If you have it and you want to use it for business, and then you want to use it to track your personal expenses, that's fine. You just can't send it to your best friend and let them use it for their own business.

Also, everything comes with 90 days of Voxer support for any questions. Then, I periodically host office hours and co-working sessions on occasion, particularly during tax season. I did a Voxer office hour a couple weeks ago. Last week on Valentine's Day, I hosted a Zoom office hour and a co-working session where people could come in and ask any questions they had, and they could also use the time to prepare their files for 2023.

So, thanks for being here today! I hope this helps you understand Simple Financials. If you are overwhelmed with bookkeeping and want a simple solution, and you think Simple Financials would work for you, you can go to www.carlamoats.com/simple, and you still have time to make tax season a breeze.

Do you need or want a full-featured bookkeeping system? When I went through the list of people who this was not for, was that your business? Do you want to use QBO or want to move to QBO? Then go to www.carlamoats.com/workwithme and book some time, and we can continue the conversation. And I will see you next week.

Thanks so much for listening to the show. Remember that your finances deserve some love. Finance doesn't have to be complicated or overwhelming, and you do not have to do it alone. I'd love to talk to you about your business, so please come on over to www.carlamoats.com to learn more. Or if you're ready for financial and strategy support that will upload all your business, go to www.carlamoats.com/workwithme to book your free financial assessment. And the last favor I'll ask is for you to help me get out the word. Tell your friends about this podcast and share it on your favorite social media. Until next week, go create some purposeful profit.