Innovation

The First Steps to Financial Smarts

Getting a handle on bookkeeping will help set up a startup for success

Written by Corinna vanGerwen

No one starts a business because they want to spend all their time keeping the books (unless, of course, you’ve started your own bookkeeping business). Yet, tracking one’s finances is integral to maintaining a healthy company.

For years as a freelance editor and writer, I used the spreadsheet-and-shoebox method of keeping my books: I manually created an invoice for each job I did, then entered the client and amount into a spreadsheet. All my receipts went into a shoebox until tax time, when I’d sort through a year’s worth of expenses. Very basic. And it kind of worked.

But I would never know until April whether the previous calendar year had been profitable or whether I had spent way too much money on office supplies.

While I have a good handle on how to do my taxes at the end of the year, that doesn’t mean I’m financially literate when it comes to day-to-day money matters such as cash flow, balance sheets and the general ledger. (And apparently I’m not alone: only 18% of Canadian business owners have a good grasp of finance fundamentals.)

But 2013 is the year I become smarter about money. As I wrote in my January column, I’m getting serious about bookkeeping. To make my gift-wrapping business profitable enough to replace freelance writing and editing as my primary source of income, I’m going to have to watch my pennies, uh, nickels a little more closely.

The first thing I did was ditch the spreadsheet and shoebox and start using accounting software. I’m using Wave for now; it’s cloud-based and free, which suits me perfectly until I understand what the software does and what I need from it before shelling out for paid software. Among other features, Wave includes an invoicing function that has cut the time I spend on this task substantially. And I’m trying to be diligent about entering all my expenses weekly, or at least biweekly, so I don’t have a big pile to contend with at tax time.

Wave also has a helpful forum full of useful answers—not just to questions about the software, but also to general bookkeeping queries. However, it’s not quite enough to make me a money wizard, so I took a free seminar about cash flow offered by Enterprise Toronto (a decent introduction to the subject matter). As well, I’m reading a couple of books about small business bookkeeping basics, and I frequently search for related articles and videos online.

On the recommendation of a friend and fellow small-biz owner, I’m currently setting some financial goals for the year and putting together a cash-flow projection. She said doing so will help me figure out where I need to go with my business and help guide my decisions—in short, contribute to my goal of being more purposeful in the direction I take my business, as I said in January.

Next up, I’ll be searching for a bookkeeper who can give me a lesson on how to properly set up my bookkeeping, and teach me best practices and general bookkeeping basics. On the advice of my accountant, I’ll be looking for a bookkeeper who knows Wave so he or she can teach me within that system. Until I can outsource the task to a pro, I’ll be crunching the numbers myself. So I want to learn how to do it right.

Gone are the spreadsheet and shoebox. In their place, I’m building a system that will help support my business so I can focus on why I got into business: to do what I love. Because I really don’t want to spend all my time bookkeeping.

Originally appeared on PROFITguide.com