By definition, learning the ropes will be dependent on what you are doing. What I am trying to get at though, is the difference between a hobby and a business.
If you are anything like me, then you’re passionate about what you want to do, but less passionate about the stuff that you have to do around it – the dreaded administration.
Like many things, it’s easy, if you know how. If you don’t, relax. We’ll get through it.
Do you need a company? Can you be a sole trader? Which do you want to be?
Much depends on your location; countries have different laws. My advice is that ultimately, you want your hustle to be in a company. A company is an entity of its own. This has huge advantages in terms of liability and in terms of saleability. However, forming a company has a cost, and you know how I feel about cost. If you have revenues or customers already in place, then I recommend that you form a company. Certainly in the UK and the EU this is not a complicated or costly process.
However, it may be that you want to leave company formation until you have some revenues coming in.
Sounds obvious, but use a separate bank account. Wherever possible, use this bank account for all expenses. If a customer wants to pay cash, great. Take that cash and deposit it into the bank. Trust me, you’ll thank me when it comes to working out your accounts.
In Post VII, you drew up a budget. In itself, that is a useful exercise. However, charting progress against that budget gives you real control of the business. The good news, is that this is really simple.
At the most basic level, you can insert columns into a copy of your budget file – and input the actual numbers. If you budgeted $30 for telecoms, and your bill comes to $25, you enter that in the column adjacent. If you really want to show off, you can have a column that takes one figure from the other. There’s no reason that you can’t run your numbers like this on a spreadsheet, but you will need to be disciplined and have a good attention to detail.
My attention to detail is abso…oh look! A squirrel.
You see my problem.
For this reason, I automate as much of my accounts as possible. I use Xero, and love it, but I imagine that Sage and Freshbooks are just as good. For each business, I link my bank and Paypal accounts to Xero, so that transactions are automatically downloaded. My webshop is also linked, so sales download too.
Now – in theory, I could integrate my budgeting process with Xero too, and I daresay that I will, one day. I just haven’t got to it yet. For the moment, my management accounts categories match my budget categories, so its easy for me to see how I’m doing in individual categories.
While writing this post, I reconciled my accounts on a mobile phone. Xero learns and so when it saw a bank payment to Google Apps, it suggested to me that this was probably my subscription to Google for email. I agreed, and it entered the expense into the ledger. Done. I love it.
Management accounts help run the business. Xero will produce the data that you need to submit a return to most authorities. In short, you can do it all yourself.
However, if you haven’t made submissions before, it makes sense to get help here. Most accountants are happy to look over output from your digital bookkeeper and advise you. There’s a fee of course, but as they charge by the hour and you have done much of the time-consuming work, this fee need not be large. Agree in advance.
This post could run to pages and pages. As I wrote it, I realised how much there is to administration. (Ideas for some more posts!) Look. EVERY business person has been where you are now. If you’re not sure about accounts or company admin, ask someone. Ask me. Grab me on Twitter, DMs are open. I’ll help if I can.