Tax time for cakers and bakers (generally) leaves you pulling your hair out. With the new tax year starting this week, it is timely (and kinda essential) to get great bookkeeping practices under your belt. Instead of taking up 2 full days at the end of financial year. Sound familiar?
My bookkeeping style is quite simple and it works for me. Once per month I do a full reconciliation of bank statements, invoices, receipts and PayPal account. That normally takes 1-2 hours, but leaving for 3-4 months can be up to 8 hours! I am quite old school and I use (and still do) an Excel spreadsheet. Yep, no apps!
The best way rule of thumb is to keep on top of bookkeeping frequently vs. infrequently.
5 Monthly Tasks for Every Cake Business
Love them or hate them, bookkeeping tasks aren’t something you can ignore in your business, and ignoring them only makes the inevitable tax preparation harder. But we’re here to help! I’ve put together a list of the five most important things you need to be doing every month to keep on top of your finances. I’ve even included recommendations for software that will make your bookkeeping much easier.
Our recommendation is that you set aside a specific time each month to go through each of these tasks. Doing so can and will save you a lot of time and money in the long run!
1.) Scan Your Receipts
Why you should do this: Receipts are a certified pain in the backside. They’re small, they’re crumply, they get into every tiny crevice of your bag, and that’s not even mentioning the frustration of trying to go through piles of crumpled up receipts, trying to find that certain one you need right now. I’m terrible about keeping track of my personal receipts – nine times out of ten, they end up smooshed in my purse with all the shopping lists, notes to self, and baby trinkets.
But business receipts? Oh, ho, I watch those babies like a hawk. Why? Because I need to have my receipts on hand in case I get audited. When it comes to tax time, you had better believe all my business receipts will be present and accounted for so I can maximize my tax savings.
What you should do:
- Throughout the month, scan all business-related receipts into your computer immediately. Make sure that the vendor’s name, the date, and the amount are clearly visible. Keep all of the scanned images in a single place on your computer.
- Each month, go through your transactions in your cloud-based accounting software (we’re super-big fans of Xero) and upload the matching receipts to each transaction. That way, everything is there and accounted for during tax time!
2. Go through your Accounts Receivable and Accounts Payable
Why you should do this: Funny story. So, I had a baby back in December followed by an infection that required a second hospital stay. To say my house was inundated in medical bills would be an understatement. My job was to check the mail, sort out what were bills and what was junk. April going into May, I kept noticing this one lab bill coming back up over and over. It was for $7 and change, and every time I asked Matt about it, he would insist that he had paid that bill, so why were they still sending us a bill?
Turns out we had been sent TWO bills for $7 and change. Matt had paid the first, but because we didn’t look terribly close, we didn’t realize that there was another until the account had been handed over to collections. Oops. We blamed it on the fog of New Baby (because you only think you know tired until you have a newborn).
The moral of the story: pay attention to your Accounts Receivable and Accounts Payable!
What you should do:
- Enter all bills into your Accounts Payable immediately when you receive them. Use your cloud-based accounting software to ensure that you’re paying every bill.
- Connect as many of your vendor accounts as possible to your accounting software. Don’t be afraid to use this feature! Both Xero and QuickBooks Online use bank-level encryption, so your data is as safe as it can be. Doing this can help keep stray bills from wandering off.
- Quote and invoice your customers through your accounting software. That way you will always have a record of it.
- After paying your bills, go through your unpaid invoices. Make contact with any customers who have not completely paid their accounts.
3. Reconcile Your Bank Statements
Why you should do this: I have a terrible short-term memory. No, seriously. When I’m working, I have to write down a to-do list and add to it constantly, or I will completely forget to do something. It’s also why I end up reconciling my bank accounts weekly. If I don’t, I will not remember every single transaction I’ve made. Now, imagine how difficult it would be if I only did that once a year at tax time. I’d be a wreck. But why should I be concerned about reconciling every single itty-bitty transaction? It’s not like it’s that important, right?
But it is. When you are running a business, every transaction must be accounted for so you can see exactly where the money is going. Money that is unaccounted for is money that you could have used to re-invest in your business! And that’s not even going into the questions that will be asked if you are, God forbid, audited for taxes. It is also the easiest, quickest way to make sure that you are the only one spending your business’ money.
What you should do:
- Sync your bank accounts with your accounting software. These programs come with bank-level encryption, so your data is safe. By syncing your accounts, your bank statements will be automatically imported and your transactions set up so you can match them with purchases or orders you’ve already created.
- Go over each transaction. Make sure that you recognize each transaction.
- Classify each transaction accordingly, using your chart of accounts. Don’t hesitate to adjust your chart of accounts to your needs!
4. Calculate Your Monthly Profit
Why you should do this: I don’t know about you, but I’m always super-excited to see how much profit I’ve made! It is guaranteed to put a smile on my face.
But there are more important reasons for checking your profit than “it’s an awesome feeling.” Looking at your profits or losses allows you to take your business’ pulse, in a manner of speaking. It also allows you to make any changes if, say, one month you discovered you were running a budget deficit.
All accounting software has an option to run what is called either an Income statement or a Profit & Loss statement. It’s also a good idea to check you statement of cash flows to make sure you have enough cash on hand to cover an emergency.
What you should do:
- Search your software’s documentation to discover how to pull up your income statement and cash flows statement. Here is the help article for Xero, and here is the help article for QuickBooks Online.
- Go through each category of income and expenses. Make a note of successes and costly mistakes for future reference.
5. Plan Ahead
Why you should do this: With all of the information you’ve gathered, you now have a clear picture of your business as it is today. At this point, you can start to plan out how you want your next month to go. Do you need to increase your cake orders so you can order those awesome new cake molds you’ve had your eye on? Did you spend a little too much on ingredients this month? Will you be able to achieve your year-long sales goal if you continue as you did this month? And speaking of long-term planning, do you have an emergency fund you can tap during the lean times, or when unexpected expenses pop up?
This last step is critical. Planning ahead allows you to prepare for curveballs like a customer that bails at the last second or your oven having a complete meltdown.
What you should do:
- Look to your yearly budget. Compare where you are to where you should be. Make adjustments accordingly.
- Build up your emergency fund. All businesses should have enough on hand to pay at least three months’ worth of expenses, but the cake business can be seasonal, so you may want to keep more money stashed away depending on your unique sales patterns.
- Dream big. Take some time and daydream about what you want your business to be like. You may think of something you hadn’t thought of before.
Spring cleaning is a breeze if you’ve been keeping your house clean all year. Bookkeeping is the same way. Do these five steps every month, and you will avoid massive headaches at the end of the year. Imagine tax season coming around and you not freaking out, because you’re already on top of your financial situation. Sound wonderful? It is. You can do it!
Want extra help? Join Cake Biz Bootcamp!
–Pin It For Later!!
We discuss and teach about how to price in Cake Business School‘s training module: How to Price Cakes, For Maximum Profit, With Confidence. From charging for profit (including pricing guides, cause you guys love them!) to looking at the future goals of your business. If you want to save for a house, we are going to make that happen.
- HOW to MAKE MONEY for your future big dreams.
- What courses, products or CAKE-Y stuff you can SELL, to bring in more money
- Includes Pricing Guide
It is only $1 for the first month, 100% money back guarantee in the first 30 days and cancel any time. Enroll in Cake Business School here.
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Founder – Angel Foods and Cake Business School
I would love to hear from you.