(continued from earlier post)
In the last post, I listed a few things that you want to make sure to keep in mind. Here we talk about how to keep track of these things.
When we first started, we used an excel spreadsheet. It made since in the beginning, but I quickly realized this was not a good idea. There are too many potential issues at stake including: rounding, human input error, improper categorizations. Finally, it is harder to manage the tax responsibilities you have using a spreadsheet. Here is how to bootstrap your startup and manage your finances at the same time:
(1) Choose a business bank account (see my earlier post for more info here)
(2) Choose a credit card account you will use (once again, you can read my earlier post for more info)
(3) IMPORTANT: Setup an account using Wave (url: waveapps.com). Why use Wave? It’s not because it’s the best software interface out there (though it is pretty darn good). It’s because it’s FREE, and as a bootstrapper you care about runway, remember? Wave automatically pulls all of your charges and purchases into one easy-to-view transaction list. This is the first step towards ensuring your books are sound.
(4) In the future, everytime you need to infuse your company with funds (be it through a personal line of credit, cash infusion, or if you are lucky, an investment), deposit it into your company’s business bank account before doing anything else. Early on, it will be tempting to, for example, pay that contractor from your bank account. RESIST that urge. Make everything go through your bank account before doing anything else.
And that’s it (at least for now). You will eventually need a bookkeeper/accountant to manage all of these incoming transactions. But those things cost money you don’t have right now. Fortunately, however, because you are keeping record of all of your transactions, your accountant will be able to easily work with you to ensure your transactions are appropriately categorized.
P.S. Note of Caution:
If you are a startup that accepts credit cards or other third party merchants, many of them make your life a million times easier, but can make the books a bit more difficult. That’s because a lot of them don’t merely facilitate the transaction, they also can act as a quasi-bank. For example, let’s say someone pays you $1,000 for 10 of your widgets. Let’s say subcontractor A charges you $100 to create component A and subcontractor B charges you $300 for component B. They both use PayPal and so do you.
This scenario can create financial issues, because the $400 expenses aren’t recorded anywhere, and even the fees PayPal charged you aren’t available (in this case, about $30). Once you withdraw your remaining amount to your bank account, you are left with $570, which is hard to go back 6 months later to remember.
Fortunately, Wave allows you to pull in PayPal transactions, but not all bookkeeping services do. So make sure to use one that does allow for this type of information.