Accounting use to be a major chore. Last summer, in the midst of 80-100 hour workweeks focused on building my farm into a workable business, I neglected this task for about 75 days. I logged in to my accounting thingy, and was nearly swept away by the deluge of transactions that had automatically fed into the program from credit cards, bank accounts, etc. This even caused some income transactions to be entered twice (receiving cash payment at the farmer’s market, and then recording additional income when the deposit fed into the system as an additional transaction). DISASTER!
2018 is different. I finally found a system that works for me: simple accounting by pencil and paper.
This system is very practical for small, solopreneur businesses like ours. To make it even more workable, I supplement the basic ledger with free online accounting by WAVE for creating, sending, and keeping track of invoices. Once those invoices are paid, however, I mark a simple notation into the ledger as income (ABC restaurant – $80 income under the restaurant category, for example).
Here are twelve reasons why I love this method.
- It lessens my attachment to screens.
- It’s extremely simple. When I make a business purchase, I enter the amount into the ledger that same day, and file the paper or emailed receipt into it’s appropriate receptacle immediately.
- I now look forward to accounting dates with myself.
- Other than the purchase of a $7 ledger from Amazon, it’s free. Conventional wisdom would have me paying $20/month for Quickbooks Online. We can’t justify such an expense for our businesses. Also, Quickbooks would have you pay this for each business! Though things are slowly stabilizing, we barely eke along. This is real money for us.
- Our businesses (farm, art, writing) are run simply, by necessity. Expenses are extremely straightforward (seed, various supplies, etc.). This isn’t rocket science.
- This system is dynamic. If something doesn’t quite suit me, I’ll turn the page after 30 lines of income and expenses (usually once every month or two) and tweak it. I still haven’t arrived at perfection, but the system continually adapts to me rather than the other way around.
- I get to create my own rules. Try googling accounting methods sometime, and taking a whack at double-entry bookkeeping. Yeah right! My goal here is to simply keep track of income and expenses. Conventional accounting methods are ridiculous. When it comes time to flip the page, I simply add up my running totals in the various income categories (grocers, farmers market, restaurants) and expenses (supplies, seed, etc) from top to bottom. What more does a small business like this require? I’m not tracking how much money I have in various accounts. This tracks income vs expenses for our taxes. Nothing more.
- This forces me to keep my hand on the business, rather than simply in the business. I see the big picture in terms of how much money we’re bringing in vs how much is going out. When you rely on a program to simply feed in all your transactions from a credit card, you are counting on the computer to keep a tally for you. The tendency is to put this aspect of the business on auto-pilot, because you’re too busy keeping all the plates spinning.
- Logging on to discover 100 transactions requiring categorization sucks! You end up living in the past, rather than the present. The process of manually writing down individual business purchases causes one to be more intentional about them, considering them carefully. Additionally, income notations make you think carefully about whether or not certain business efforts are worth the effort (i.e. small dollar/high maintenance customers).
- This system is portable, and I need not stare at a screen like everybody else.
- I get to use a mechanical pencil and a beautiful pink eraser. The tactile nature of it all feels great!
- My vehicle mileage totals are categorized in this same simple tool (on the far right column). This solved years of frustration!
Here are a few tips to make this work for you in 2019:
- Avoid analysis paralysis. Just get started. Don’t be afraid to tweak the system as you go. You’re simply looking to add totals under a few basic categories that match your appropriate tax form (Schedule F for the farm, and Schedule C for the other businesses). Look those forms up online and craft your categories with the end of year in mind. Your future self will thank you.
- You don’t need 90 categories. You’re not the CFO of a big company. Keep it freaking simple.
- Consider ditching the Utopian idea of tracking all your personal transactions. You don’t have time, and have better things to do. Simply spend less than you earn. More on this in another post, but suffice to say, things get a lot easier when you can take your personal life out of the equation.
- Instead of making lots of small purchases, make a few large ones. Recently, for example, I bought ten cases of packaging to the tune of $320. Likewise, my wife places giant $600 orders for her supplies rather than annoying little ones. In the past, I stupidly ordered such supplies twice a month. Fewer purchases mean fewer lines to record, and fewer opportunities for error.
- Record your vehicle mileage in the same ledger as your financial transactions. This will change your life!!! I often economize lines by causing them to serve two, or even three, purposes: mileage for grocer deliveries, farmer’s market income, etc. You’ll never again be sitting around in March fretting over the fact that you haven’t been tracking mileage accurately.
- There are 30 lines for you to record transactions. Total everything up on the 31st line (double-checking, of course). This provides you an opportunity to compare income vs expenses for this portion of the year. If things don’t add up as planned, diagnose the problem, and course correct if necessary. On the following page record your running total at the top, above each column.
- Use free online accounting software like WAVE to keep track of outstanding invoices with your customers. Currently, I have just two grocer customers. One has two locations, requiring 8 – 10 invoices per month. The other is just one weekly drop-off producing 4-5 invoices. Thankfully, the Whole Foods Co-op, where I make the majority of sales, cuts just one check per month. This is awesome! I mark those 10 invoices as paid in WAVE, and then enter the big payment in one simple line in the ledger. The other grocer sends two checks per month. This is very simple to record manually in addition to marking them as paid in the computer.
- Make it fun. Seriously. You are your own boss. There’s no reason whatever method you choose shouldn’t be enjoyable. Light a candle. Crack a beer. Find a way to look forward to this!
I could wax eloquently about this system for another 10,000 words, though you’re probably bored to tears by now. I even considered writing a small e-book about it! This is simple. You can do it. Eventually we all might grow out of this system, and move on to something like Quickbooks. For now, however, this works better for the scale we are at. The added benefit is that we come to know and understand our numbers really well as the businesses grow.
This can help you fixate on the 80/20 rule (20% of effort producing 80% of income), and focusing on the things that pay.