If you read my free essay ‘Organizing Ideas for an Entrepreneur’ on my promotional site at PromotionalCLillyJLekhan.com, you will read all that you need to know about keeping your records for legal purposes (combined with common sense about your society, of course) for a Microbusiness. If you are a business owner and want to take it to the next level, read my pay-for-access essay on the same site called ‘Sketch of My Handwritten Planner’ for $7. You have permission to print these essays after purchase.
I can tell you about basic financial record-keeping for a one-woman shop, and then you can head to some other blogs to figure out the correct way to do it, and how to do it if you have employees. These ideas are just to make sure you have the information down in a way that is easy (and cheap) for a lawyer to read. These are the records you will need to keep:
- A spending log
- Bills Due Calendar
- Taxes and Fees Due/Renewals Due/Purchases Due Calendars
- Daily Sales Record
- 13 column ledger
These are for your business. You may want to keep separate ones for your personal life if they are relevant, or merge both info into one record. I have a little blank graph that I photocopy and fill out each month that has all the important deadlines, expirations, and other info I need to keep track of for my personal life. Let me describe each of the records above:
Spending Log: You need to enter the info from each receipt here (always get a receipt) before shredding or filing it. You want to enter the date, the price, method of payment including which credit card you used, a phrase to describe what you bought, and the name of the store where you bought it. Some people might include the time of purchase and indicate if it is a business expense or a personal purchase.
Bills Due Calendar: I have a form made up in a Word document that has each quarter on one page in landscape view. There are four columns: one for each month, and one for notes. Each column has 31 lines, and I just type in the bill name–use the company that you write the check to–and the amount due on the line of the due date. If you are not sure, put it where it will probably go with a question mark after. After I have paid it, I type in paid and the date paid, right after the amount. Type in any other info that you want to keep handy about bills in that quarter in the notes column. All bills paid go into the spending log as well.
Taxes and Fees Due/Renewals Due/Purchases Due Calendars: These are 1 page each, with all 4 quarters (or the whole year) on each page. I staple them together for a 3 page document. I have a form in Word that I use that has the number of each quarter and then the three months of each quarter under it. There are 3 columns: one for the name of the month, one that says ‘event,’ and one that says ‘date.’ I put what is due in the month that it is due and the corresponding date due from that month in the date column. I separate each event with a semi-colon, and separate the dates with one too. So if there are two events (two different things due), there will be two dates listed in the last column. List things in chronological order. It will look basically like this: Month Event X; Event Y; Date X; Date Y;
Include a blank space at the bottom of each page for notes.
Daily Sales Record: I modified the Bills Due form that I have in Word to turn it into a Sales Form. Each quarter is on one page, and there are four columns: one for each month, and an Expenses column–with 31 lines in each. In the header next to the month name is the total sales for the month, and above that at the top of the page is the total sales for the quarter. At the bottom of the Expenses column is the total expenses for the quarter, and expenses are in chronological order down the column. Somewhere at the top, indicate the time of day that you routinely record your sales–which is normally close of business around 5 pm. I put each type of sale in a different color on each date, and separate them with commas. Red is for subscription sales on The Sweetest Art List site, blue is for essay sales on my personal promo site, and purple is for sales of links on The Sweetest Art List site. I follow that with Fees Deducted (bank fees) from subscription sales in green, and then the Fees deducted from essay sales in black. Always use the same order and the same colors on any given form, and make a key to the colors in the notes or blank space of the form.
13 Column Ledger: This ledger is where you will figure out your taxes and profits. You should put one month on each sheet, with extra lines at the bottom used for monthly and weekly totals, analysis, and notes. Earnings and pay to keep will be in black, deductions will be in red, and summary columns will be in blue. Each date goes on a row, and after row 31, draw a green line across the page. Row 32, under the green line, is for the Monthly totals. Here are the thirteen columns for me, with their colors:
First, in the description column, I recopy the line from my daily sales record, with the same colors, and the same commas separating them. You can use a minus sign in either the daily sales record or the 13 column ledger description column when you are listing the fees deducted.
- 1. Total Sales (black): Add up all sales for the day.
- 2. Sales Tax WV (red): Column 1 x State Sales Tax Rate: My total sales take place in one State so I just multiply by the State Sales Tax Rate, which is fixed across all my products.
- 3. City Sales Tax (red): Column 1 x City Sales Tax Rate: My total sales also take place in one City, so I just multiply by the City Sales Tax Rate, which is also fixed across all my products.
- 4. Fees Deducted (red): Green + Black: I add the bank fees deducted from subscription sales to the bank fees deducted from essay sales.
- 5. Personal Taxable Earnings (blue): Column 1 – (Column 2 + Column 3 + Column 4): I subtract both sales tax payments to city and state, and both bank fees payments for the day from my total sales. Now I have the money I actually earned, which is less than total sales, and which is taxable at a personal level. I pay the sales tax myself and don’t charge the customer, so for me it is a deduction from sales. If you are charging the sales tax to the customer you will have to rework this ledger. You should probably put City Sales Tax in column 1, State Sales Tax in column 2, and Total Sales in column 3. Then move the rest of the ledger to follow that in order, and adjust the mathematical formulas.
- 6. Other City Taxes and Misc Taxes (red): Column 5 x (Sum of all Tax Rates)–use ‘NA’ if there are none: These are taxes that would be applied to my personal taxable earnings at the local level. This is only for taxes that are relative to how much I made. The rest I consider a one-time or multi-time fee payment. If I am not going to have any of these for the whole month, I like to use NA instead of zero. Multiply the personal taxable earnings by the sum of the rates.
- 7. Federal Income and Self-Employment Taxes (red): Column 5 x (Income Tax Rate + Self-Employment Tax Rate): I am using the lowest tax bracket for this calculation. When I pay more than the lowest, I know it is a part of my relationship with the Government as a business owner and something to keep an eye on. You can reenter the info into a spreadsheet to recalculate it, once you realize your tax rate is going to go up–so that you have two sheets to look at to assess how you feel about the way the Government is relating to you. If you go with the lowest bracket, use the lowest bracket for all tax calculations, but make sure the maximum income for each level of taxes–for the lowest bracket at that level of government–is around the same. Multiply the personal taxable earnings by the sum of the Income Tax Rate and the FICA Rate (Self-Employment Tax Rate).
- 8. WV Income Tax and Other Personal WV Taxes (red): Column 5 x (Income Tax Rate + Sum of all Other Tax Rates): Once again, I use the lowest tax rate. Then I multiply the personal taxable earnings by the Sum of the Income Tax Rate and all other Tax Rates.
- 9. Total Taxes Deducted (blue): Column 6 + Column 7 + Column 8: This is the sum of all the taxes that are applied to your personal taxable earnings. Now you know how much you were taxed each day on your personal taxable earnings.
- 10. Total Deductions (blue): Column 2 + Column 3 + Column 4 + Column 9: When you add the Sales Tax payments, to the Fees Deducted, to the taxes for each day on your personal taxable earnings, you have the total amount that was taken out of your total sales by the Government and your bank.
- 11. Net Revenue (black): Column 1 – Column 10: Subtract the Total Deductions from the Total Sales to see your Revenue for each day.
- 12. Expenses and Misc Deductions (red): Use Expenses per Day Average: Fees increase with sales, but expenses are usually on a budget and fixed, and mostly predictable. I set a budget for business expenses for each month, multiply by 12, and then divide by 365 to get the average expenses per day figure. I write this figure on each day all the way down the column.
- 13. Profits (black): Column 11 – Column 12: When you take the expenses out of your revenue, you are left with the profit. So Total Sales minus Total Deductions = Net Revenue. And Net Revenue Minus Expenses = Profits.
You can’t get a perfect record of Profits because tax rates, fees, and the prices that go into your expenses are always changing. But you can get a general idea of how the profits are turning out, and how they relate to your sales. Profits are all for you–there is nothing left to do with that money but put it away or spend it on yourself.
This is how I keep my records for a one-woman shop, and it should get you started on figuring out how to keep your records for your Microbusiness. Hope it helps!
Lilly Lekhan, Poet and Founder of The Sweetest Art List