Aside from all the modern day niceties that help you run a business from home, technology must be your friend in order to stay on top of your business income, your business value and keep you straight with the Internal Revenue Service, Federal Trade Commission, or Canadian Revenue Department.
First you should assess how your business fits with modern day technology such as access to the internet, a scanner, your cell phone, tablet or laptop, VOIP, printer, fax machine, copier and your ability to use email to your benefit. You can attach document files to emails to send quotes, orders, invoices, letters and whatever else you want over the internet – speeding up your time and your profits.
Finally, there is the question of software that is right for your home business. There are a number of software packages you can purchase that let you do many tasks on your computer. Letter writing software, inventory management programs, publishing software to create newsletters or marketing material are just a few examples but there is one other important piece of software you need to manage a successful home business. You need to purchase a bookkeeping or accounting software package that enables you to organize your tax records and keep you informed as to the financial condition of your business.
Maintaining Good Financial Records
Keeping good financial records is crucial to any business and that includes the home based business. In the next section we will talk about the importance of maintaining those financial records on a regular basis.
Many small businesses often run into trouble because there is not a good record keeping system in place. The home based entrepreneur is frequently someone with a passion for his or her products or services, enjoys meeting new people, considers marketing to be a challenge and would prefer torture rather than spend valuable time tracking revenues and expenses.
But if you don’t keep good financial records, you have no way of knowing how your marketing and sales efforts are doing and if you are keeping your expenses under control. In addition, the government has a variety of reporting requirements you must meet. Everyone must file annual tax returns, but if you decide to add one or more employees as your business grows, there are additional reports you must file on a quarterly basis.
On the list of important reasons given for why home businesses fail is lack of good accounting records. If you don’t know how you are doing financially, how are you going to know if you are on track? How do you know if your business plan is sound? How are you going to know whether you need to change your marketing strategies, make price changes, or reduce expenses?
In other words, you need to see your bookkeeping system as a management tool that can provide you with the signposts you need for determining what path to take towards success.
Using Record Keeping Software
You have a choice of bookkeeping methods. You can keep manual records or computerized records. Most people today use bookkeeping or accounting software to track business records. There are a number of options available that range from simple revenue and expense bookkeeping to complex multi-department accounting that is integrated with sales and inventory programs.
The difference between bookkeeping and accounting is one of degree. Bookkeeping software is a basic system for recording primarily cash sales and expense figures. It is quite possible that your bank offers a bookkeeping system based on your checking account activity. You can download your deposits and check information right into the record keeping system. When it is time to prepare the tax return, the accountant will use the bookkeeping records as the basis for preparation of the required business forms.
An accounting system, on the other hand, is designed to handle either cash or accrual record keeping. It also has the necessary features to create entries for tax accounting purposes such as depreciation or inventory records.
The kind of financial record keeping system you choose depends on the complexity of your business. If you operate a simple business selling one particular set of products, do mostly drop-shipping for order fulfillment, and operate on a cash basis, a bookkeeping system will work quite nicely. If you maintain an inventory in your home, operate on an accrual basis, have employees and sell a variety of products and services, you should obtain accounting software.
The Windows based software that is available today is very user friendly. You may dread the thought of keeping financial records, but today’s software is built for people just like you. The software can streamline the entire record keeping process.
One important point to keep in mind though is this: you can only be a better manager in your home business if you create a streamlined system of records flow. You need to maintain a good filing system both on and offline. You will need to keep backup paperwork for your sales and expense figures which prove the entries made in the bookkeeping and accounting systems are accurate. But you also need to have a good online method of filing correspondence, email inquiries, order fulfillment and invoices sent through the internet.
When you say financial statements the implication is for big corporations with an army of accountants preparing formal reports and making complicated entries, but even the smallest home based business needs to produce management reports and financial statements which give a clear picture of how the business is doing.
Both bookkeeping and accounting systems produce financial statements either on a cash or accrual basis depending on the kind of program you use. Financial statements should provide useful information that you can use to judge your business progress and to make future financial decisions. If you buy a good bookkeeping or accounting system, the program will probably also generate management reports such as customer data and inventory analysis reports.
The key to successful financial management of your home business is to use the information you have available. Some people wait until the end of the year and then desperately try to input a year’s worth of data. They are really short changing themselves when they handle the financial aspects of the business in this manner. It means they are not using their management reports as decision making tools throughout the year.
There are many types of record keeping software packages for sale. They range in prices from as low as $40 to hundreds or even thousands of dollars. Before you buy one it is best to do some research and talk to others who have actually used the systems. Whichever you choose to buy, it is important the system be expandable in the future to accommodate your business growth.
What this means is that if you buy a basic system for cash bookkeeping, it should be upgradeable in the future with the addition of modules if you so choose. Or the data in the basic system should be convertible to another more sophisticated version or even another software package. You don’t want to have to recreate your accounting system down the road after your business expands.