Wednesday, June 23, 2010

"Beginning a Business: Getting a Handle on Money"


Beginning a business with my daughter is one of the more terrific things that I've done. We sat and discussed the creative aspects of what we would sell (the paper dolls), where we would sell them basically at first (Etsy), and the different phases of starting up our business. Of course, phase one is just getting everything up and running. Megan is doing a terrific job of designing the paper dolls and her entries are devoted to the creative side of the business. At present she is telling you how Alice and the White Rabbit has been created in her entries.

Megan thought it would be a good idea if you read about the business side of the venture as well as the creative side. I agree. If you want to begin your own business, maybe some of what I tell you will help. I hope so. The business side of the venture is always a little more concerning, time consuming, and occasionally dull (if there is enough money to go around) or too exciting (if there is no money or not enough to go around). It is always good to know where to begin on the business side and that is what my blog entries are all about. Today is getting a handle on money. It is basically the accounting part of money. The keeping track of it. Money has many interesting aspects to it but today we are going to focus on the accounting part.

The business side of any start up business should always begin with thoughts and actions about money. How much do you have to start your business? Is that enough? What is the price point at which you can sell your product? How much income can you make your first year? Will it cover your costs? What in particular in the way of supplies do you have already that you can use and what must you buy? And on. . . and on. . . and on. This is where most people get stuck and overwhelmed at the same time.

When you begin a business, you must get control of the money side of it before you go on to any other questions you might have. You can have millions of reasons why you want to begin a business but to keep your dream alive you must be smart about the money. You don't have to have a lot of it but you must keep track of the money you have and use it wisely.

First, how much actual money do you have for the venture? That's your start-up money. Whether you have your own money or have borrowed money, it is of the utmost importance that you now keep track of it. I can't emphasize this enough.

I have chosen to keep track of the money side of Five and Nineteen Blackbirds on a commercial product called Quicken. It lets you keep a running total of your expenses and income. Whenever you spend or make money, you make an entry in the register and after the entries are made you check on the health of your business. That is key. Making those entries on the day you make your purchases or receive your money is so important. It is easy when you do that. Not so easy or as much fun if you wait several days (or a couple of weeks--oh, no!) because then everything is all mixed together and you feel like maybe pulling your hair out (or perhaps someone else's hair) and the fun evaporates and the hard work begins. Know how much money you have at all times. Life is just easier that way.

Because I'm using an older version of Quicken (since we already own that one) the titles I use for things may have changed. The first thing is to set up a register. Just use your business name on it. My first entry is the amount of our start-up money. The entry information is pretty easy to do. Underneath the name of your business the form will have the date (be sure to use the date on your expense receipts or money receipts); the number of the check, the name of the payee, category or memo. This is very important because you will want to know where the money is going or from whom the money is just piling up from in your account. With the amount of the payment, and here is one of the neatest parts, you can do an open split which is basically taking your receipt and typing in the amount of each item you purchased. Hobby Lobby is my example. We bought glitter glue, brads, paper and small plastic bags. Each item is listed with the amount that we paid for it. Now anytime I can go back and find out how much we have spent on just glitter or brads, etc. The next two headings are payment (expenses) and deposit (income) with the final heading being balance. You will always want to know your balance so that you don't run a negative one--which is spending more money that you have or are taking in. A business that runs in the red (negative balance) pretty much kills your dreams. And no one wants that!

So you are saying, "Great, I don't have that program. So what do I do now?" Well, you can also keep track of your money on paper. You just need to set the categories up on the paper and do the math as you go. The paper and the computer program will both get you to the same place. I've done the paper way before I had a computer program. I can tell you that keeping it on paper is a little more work on your part but with a good calculator and a little more time, everything is good. You don't need a computer program to keep track of your accounting. It just makes it easier because the program does so much of the work for you. All you do is type in the figures and the program takes it from there. But would I buy a program if I didn't have one already? No. I would spend my money in other places for other things. But, if you have a program already, you can use it to make your life easier.

There is only one more thing I want to discuss today about money. I will discuss other aspects of it in later entries. We will get a separate banking account for this business. It will just be easier for us. An account devoted to Five and Nineteen Blackbirds can clearly show what income we have and what expenses we incur. It will make our life easier. Especially when we enter the second, third, etc. phases of our business. You don't have to have a separate account--just keep really good records. There are many good reasons for doing so. Probably paying taxes is maybe one of the best reasons to keep clear and precise records.

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