How To Organize Your Online Business Finances For Free

Plain and simple understanding the business finances is your job. Your finances tell you what is going in and coming out of your business. For most businesses, making money is one of the top priorities. So here’s a simple question.. How much money is your business making?

If you answer with your revenue then you fail the test. The profit you report on your taxes might not be the answer either. The real answer will depend on what you include in your business expenses.

I will help you answer that question.

Here is the spreadsheet I will be using as we go through this example. Before getting started you need to make sure you have your finances separated.

Don’t Mix Business and Pleasure

Separate Separate Separate.  Its a pain at first but so much easier in the future if you just separate your business and personal expenses.  I know you love your business and would never sell it but things change.  Also, even if you do keep your business it would make tax time a lot easier if things were separate so the dreaded auditors can pass over your information with ease.

If you tried to answer the “How much money is your business making?” question from above but don’t have your business revenue and expenses separated from your personal expenses then its almost impossible to really know.

What Does Separation Actually Mean?

To separate business from personal you need to be sure to have different spending accounts.  This could mean that you have a separate bank account and credit card just for business. Or it could mean that you just have a separate paypal account that’s only for business. I recommend both.

Its a bit of a hassle to set up different bank accounts and credit cards.  It is also difficult to actually pull out different credit cards to pay for business expenses instead of using the same card for everything.  But remember that at the point of purchase you have all the knowledge of what type of expense this is.  Sometimes you forget that later on when you are trying to understand what you spent and why.

For owners with multiple businesses you should also separate the businesses from each other.  I would recommend doing a separate entity (LLC) for each business but it really depends on the nature of the business and how you classify it.  The main benefit for the separation is to see how much actual profit each business is making on its own.

So for example if you have 10 adsense sites that are essentially identical copies just in different niches then you might bundle those together into one business.  But as soon as you want to start testing new strategies or revenue models then you want to separate them out to see how successful the tests are.

If you are separating out small websites from the others then there is really no need to create a new LLC and new bank accounts. You can do this separation manually until it gets too big to handle, then make the switch later.

Now that you know to keep separate records is that it? Not quite.

You really need a bookkeeper.  A bookkeeper will organize all your transactions in a meaningful way.  This can be useful for you to keep track of things as well as see where you need to spend more time.  Also this is very helpful for your accountant.

Your Company’s First Bookkeeper is You

Lets back up just a little.  Don’t hire a bookkeeper just yet.  Get a google spreadsheet set up and start hacking away at it yourself first. I’ll show you what you need to do in 7 steps:

1. Get your statements ready

2. Label Business/Personal

3. Label Accounts

4. Label One Time/Recurring

5. Do this in real time

6. Make a plan for excess cash

7. Outsource

1. Download your bank statements, credit card statements, paypal transactions, or any other financial institution transactions that you want to keep track of. Most of the time your bank will have an online portal that will allow you to download the transactions as comma separated values (csv files).  This will be the easiest format to copy into google sheets.

Once you have all of these statements downloaded then you need to open them in google sheets.  They will probably have a lot of columns depending on how much information is available and recorded. The only one’s you really need are:

  • Transaction Date
  • Amount
  • Vendor

If your bank also has a really good method of adding categories to each transaction then you can add that but I haven’t seen this work well without a lot of extra work. Also you will need to add a new column to the left of these three columns and put in the name of the source: bank, credit card, or financial institution.

Here is a snapshot of the spreadsheet before removing unneeded columns:

Here is how the table will look after deleting the extra columns and adding the source name column:

Source Date Name Amount
US Bank Credit Card 6/15/2015 AMAZON MKTPLACE PMTS -$73.56
US Bank Credit Card 6/15/2015 GOOGLE -$1.99
US Bank Credit Card 6/16/2015 PAYMENT THANK YOU $10.00
US Bank Credit Card 6/17/2015 INTEREST CHARGE ON PURCHASES -$6.95
US Bank Credit Card 6/22/2015 GOOGLE -$9.99
US Bank Credit Card 6/24/2015 AmazonPrime Membership -$99.00
US Bank Credit Card 6/24/2015 AMAZON MKTPLACE PMTS -$7.89

Once you have the first account completed then you can continue to import all the accounts you want to keep track of.  Once you have the columns deleted the source column added you can copy them under the first account rows.  So at the end of this step you should have all your transactions for this period listed on one sheet.The next few steps we will be adding various columns to organize the transactions.

2.  The first column we need to add is the Business/Personal column.  If you have already separated business and personal accounts then you will only have to separate businesses in this column.

Add a column to the right of the amount column already on your sheet.  Then label this column “Business/Personal”. For each transaction you need to put in the business name or if it is personal you will need to just type in “personal”.

There may be some transactions that will be split between two or three businesses.  This can get complicated but for now just add a new row and split the expense evenly among the different businesses.

For example if my AMAZON MKTPLACE PMTS transaction from the table above is for 3 different businesses I would just add two more rows under the first one. The first 3 columns would be labeled identically as the current transaction but the amount, and business/personal columns would change:

 

 

Dealing With Transfers

Some of the transactions we have from our statements will be money moving between accounts.  This can occur for example when we make a payment on a credit card. Transfers will not have a Business/Personal choice because they are not an actual expense.  You can label this simply as “transfer”. This will be the same for the next few steps as well.

Personal Transactions

This sheet is meant to be transactions for your business so I recommend that you eliminate the personal transactions. If you see that you have a few mixed in then it may be wise to leave them in the sheet correctly labeled just so that your accounts will match the correct balance if you want to go back and match your balances to statements in the future.

3. The next column you need to add is for the account.  You can take a look at this list of accounts for some ideas but remember this is for you to understand so group things together in a way that makes sense to you.  The actual names of the accounts are not as important.  If you sit down with your accountant to review this in the future they can change the account names to fit their template.

Here is a small list of accounts that will get you started:

  • revenue
  • cost of goods
  • training
  • travel
  • marketing
  • salary
  • office supplies
  • online tools
  • interest expense

Here is the example from above with the account category added:

Source Date Name Amount Business/Personal Account
US Bank Credit Card 6/15/2015 AMAZON MKTPLACE PMTS -$24.52 Business A Office Supplies
US Bank Credit Card 6/15/2015 AMAZON MKTPLACE PMTS -$24.52 Business B Office Supplies
US Bank Credit Card 6/15/2015 AMAZON MKTPLACE PMTS -$24.52 Business C Office Supplies
US Bank Credit Card 6/15/2015 GOOGLE -$1.99 Business A Online Tools
US Bank Credit Card 6/16/2015 PAYMENT THANK YOU $10.00 Transfer Transfer
US Bank Credit Card 6/17/2015 INTEREST CHARGE ON PURCHASES -$2.32 Business A Interest Expense
US Bank Credit Card 6/17/2015 INTEREST CHARGE ON PURCHASES -$2.32 Business B Interest Expense
US Bank Credit Card 6/17/2015 INTEREST CHARGE ON PURCHASES -$2.32 Business C Interest Expense
US Bank Credit Card 6/22/2015 GOOGLE -$9.99 Business C Marketing
US Bank Credit Card 6/24/2015 AmazonPrime Membership -$99.00 Personal Personal
US Bank Credit Card 6/24/2015 AMAZON MKTPLACE PMTS -$7.89 Business B Office Supplies

4. The next column and final column to add is the one time/recurring column.  This is a simple two option column.  This is important when you start to project future months’ revenues and expenses.  Its good to know how “normal” a given month is.

Good Business Habits

5. The next few steps are the continuous processes that you need to do in order to get the full value of your new bookkeeping spreadsheet.  The first is to continue this sheet in real time.  You already loaded past transactions and classified them. Now you need to get into the habit of updating this sheet in real time.

I recommend real time because you have all this information fresh on your mind when you are actually making the purchase.  Also it is a good way to get your mind to think about all expenses as a whole picture when you make each purchase. Looking at the whole picture or group of expenses together can help you see spending trends and understand the emotions that come with spending.

For this step you need to just keep this new spreadsheet open on your computer or phone all the time. Every time you pay for something just fill it in on the sheet.  Then at the end of the month, download the statements and make sure you didn’t miss anything. I recommend doing this for at least 2 months to get a good habit built.

Take Care of Cash

6. Once you have done this for a couple of months you can start to predict how much you will spend each month based on experience and the state of your business.  Then you can start to capitalize on the excess money in your bank accounts.  In this step you will predict how much excess cash will be in your bank at the end of each month.

Make sure you keep a buffer amount (+10%) of extra cash but move all the rest into some type of investment account.  I like to use betterment because it’s super simple to use and is also very easy to move cash in and out of.

Keeping your bank account low helps you gain a little extra income as well as helps you spend less because you see less in your bank.

Take It Off Your Plate

7. The next step is to continue this for a few months, build a solid process, and then outsource.  If you learn that you really like doing this then you can do it yourself but I recommend trusting your finances to a bookkeeper or accountant.

First, show them exactly what you have been doing and ask them for advice on how this can be modified based on their experience.  Then leave them to the task but get them to send you daily reports and updates for a couple of weeks.  When you are comfortable, move to weekly updates, and finally monthly updates.

This is based on preference and how fast you need this information but I think monthly reports should be sufficient for most businesses. Once your bookkeeper or accountant understands how you are using this information they can recommend changes or improvements to the process as well.

So, How Much Money is Your Business Making?

You should be able to answer that question now.In this article we have reviewed the basics of getting your first bookkeeping spreadsheet up and running.  This will help you have a good idea of what is going on in your business. Once you see what is coming in and going out in detail you will be able to make better decisions about where to focus your time.

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