Bookkeeping is a hard habit. Even if you get into that habit, it is easy to fall out of that habit. Humans have a tricky relationship with the concept of money.
If the topic of money makes you emotional or makes you uncomfortable, then you have to overcome that to succeed as an entrepreneur.
Most entrepreneurs at the early stages of their startup will not have a financial team looking after their transactions. Startup founders have to do bookkeeping themselves.
Though for small businesses bookkeeping is not mandated by law, accurate bookkeeping helps you see clearly where you are financially and how far away you are from your financial goals.
A good bookkeeping practice starts with personal accounts. Keep a good track of what you are spending your money for.
If you start bookkeeping for personal transactions, you will be shocked to see the data. You might be spending a lot of money on something and you probably never paid much attention to it.
You cannot improve what you cannot measure. Be frugal and measure everything. When something is in abundance, you need not manage it.
Money is never in abundance like air or water and it is a scarce resource. If you do not manage a scarce resource, you will end up consuming everything.
A Google sheet with personal and business accounts might be the most boring thing that you might have to do, but it is hygiene.
Go over your financials at least once every day so that you have a clear idea about your where you stand. Best to do it by the end of the day or just before you go to bed.
Liabilities, Assets, pending income payments, pending invoices and other such data should be at the top of your mind. Without that knowledge, you cannot make the right business decisions.
If you make it a habit to capture income and expenses as it happens, you don’t even need to spend a lot of time with finance and accounting.
You also don’t need any advanced tools to keep track of personal spends. Start with a Google sheet and spend as much as possible with credit and debit cards.
Everyday, add the spends to a Google sheet across each date. That’s all it takes to become a bookkeeping ninja.
There are certain hacks that I do to make this process easier.
I always use separate accounts for personal and business transactions and never mix the two together.
It might be tempting to use the corporate credit card for a dinner with family or friends, but I never do it. Financial discipline is mandatory to succeed as an entrepreneur.
I withdraw a salary from my own company and top up my savings account every month. I do not exceed 50,000 rupees per month in personal expenses.
If I can pay a bonus for myself from my company, then I would pay it to a different savings account which is meant for investments.
It might be tempting to spend more money for personal reasons when the business makes more revenue, but you should reinvest money into the business and grow the business.
You should not be a financial burden to the business’ growth. While you might not be able to work for free, it is advisable to withdraw as low as possible from your business.
For my business accounts, I use multiple current accounts for different segments of my business. The income and expenses for the agency go into a separate account. The income and expenses for our training business is maintained in a separate current account.
When you have clean books and different pockets of accounts, even if there is a mistake in your bookkeeping, it will be easier to figure out in which pocket you missed a transaction.
Every month, as an entrepreneur, you should know how much you spent for infrastructure, marketing, salaries, R&D, branding, parties, bonuses and so on. You should make quarterly reports and yearly reports as well. This will help you make data driven decisions in your business.
Most of my insights in my business is derived from looking at financial data.
You need to master financial data and be comfortable with numbers. If you think you are not good at it, then find a business partner who can have an eye for financial transactions.
As you grow as a business, you might have a financial team working for you, but you should always know what’s going on. Many businesses who have got the product market fit right have still failed because of their lack of financial discipline.
Daily bookkeeping is like brushing your teeth everyday. You might never get to a point where you enjoy doing it, but you have to do it anyway because if you ignore it, then it will cause you pain.
Start with bookkeeping for personal and household transactions and make sure that everyone in the organization follows the same habit. It is a cultural thing to be frugal and economical.
Save more, spend less, and have an eye on every incoming and outgoing transaction. There is no other way to succeed as an entrepreneur. You can delegate many tasks but not this.
When you are frugal and economical, your investors will also take note of it and they will have higher comfort level in working with you. Your customers will also take note when you use the money in a good and efficient way.
So what do you think about being a good bookkeeper? How good are you with your financial life? What are your biggest challenges?
Comment below! Over to you.