Special thanks to a great guest poster, Jason Blumer, for this post! Jason is a CPA, Partner, and Head Creative Dude at Blumer & Associates, CPAs, PC. Jason’s an innovative, smart thinker who knows his stuff. Thanks Jason!
You can also check out Do I Really Need an Accounting Package (Part 1) to read more!
As the Head Creative Dude of a CPA firm working online with businesses around the country, I thought I would chime in on using an accounting package with FreshBooks. Thanks FreshBooks for letting me give your readers my 2 cents!
The use of the right accounting package depends on whether you are a sole proprietor or whether you are a corporation. For the most part, a sole proprietor only needs single-entry bookkeeping (which tracks Profit and Loss), and a corporation requires double-entry bookkeeping (which tracks Assets, Liabilities and Equity in addition to Profit and Loss).
Among other things, the type of bookkeeping you need (single vs. double) determines what type of accounting package you need (are we having fun yet? ;)).
So it goes like this:
- First, know which type of tax entity you should be (sole proprietor vs. corporation)
- Second, determine the accounting package you need
A couple of points about the first step above, determining which tax entity you should be:
- Start your business as a sole proprietor. It’s the easiest form of tax entity to manage, and the cheapest to start (in the US). But if you start making a lot of profit, then it is a stinky tax trap.
- Become a corporation only if you have significant profit (maybe around $70,000 USD or so per year). Corporations are a lot more complicated to manage but they offer a lot more avenues to save on taxes.
Truly, you don’t really need to know all this stuff about single and double entry bookkeeping because smart web apps like FreshBooks do the behind the scenes stuff without you even knowing it. To build a smart web app like this is actually pretty tricky because you have to build it to look pretty, while disguising the fact that it is doing some accounting on the back end. It’s hard to make bookkeeping sexy, but FreshBooks has done a great job!
All you need to do is:
- Use the system consistently,
- Develop some basic processes within your company that help you manage your work and clients,
- Watch your cash, and
- Be bold enough charge what you are worth.
Systems like FreshBooks help do all of this for you, it’s the humans in the businesses that get lazy and foolish about their business. I don’t want you to become an accountant, but I do want you to be a smart business owner. And being a smart business owner means you have to do more than just perform your trade – you have to manage your time and other people, collect money from clients and negotiate contracts.
Why should you know all of this? Because your business is your life blood. Your business pays for your groceries and your car insurance. You may be a great plumber or a one-of-a-kind illustrator, but if you don’t know who owes you money or what your year-to-date profit is then you are operating in the blind. And that is just foolish.
A few points of summary,
- Don’t do your accounting (whether single or double entry) in Excel (or Numbers),
- Don’t produce your invoices in Word (or Pages),
- Consider your online accounting system your roadmap to your future (with a great trail of paid invoices in the past),
- Don’t become a corporation unless you have to,
- But become a corporation when you have to,
- Find and USE a smart web app like FreshBooks to manage your sole proprietorship or corporation,
- Go find an astute web-savvy CPA to give you counsel and help you make more money