Money Smarts: Bookkeeping and accounting – What are the simplest ways for a small scale entrepreneur to keep good records?”

When it comes to bookkeeping and accounting, there are only four words you need to remember:

Don’t

Cross

The

Streams

Business expenses go through the business account and on the business credit card. Personal expenses go through the personal account and personal credit card. The end.

If you’re just starting out, start right. If you’re a few months or years in, your job today is to open separate accounts and immediately start running business expenses through them. Worry about separating out past expenses once you’ve got present and future expenses on the right track.

Any possible extra overhead associated with maintaining separate accounts pays dividends almost immediately in the form of time saved (if you keep your own books and do your own taxes) or fees reduced (if you hire a bookkeeper and/or an accountant), since no one has to spend hours at the end of the year untangling business from personal and can get on with the real job of figuring out how much money is actually yours and how much the Tax Man wants you to give him.

Now, a caveat: not crossing the streams involves learning to identify legitimate business expenses as you go. The key word here is “legitimate”, as in “the Tax Man agrees that you can deduct this from your taxable income” and – fortunately – our friends at the CCRA and IRS have compiled pretty good guides.

Give yourself an hour, pour yourself a drink, read through whichever one is applicable, and you’ll be miles ahead of most entrepreneurs when you’re done.

Only once you’ve uncrossed the streams and read up on how to identify them going forward should you worry about the methodology of keeping records. A simple (and free!) spreadsheet can be effective if you’re diligent about keeping and recording your invoices and receipts and checking them against the transactions on your bank account or credit card statement, but has no internal checks and balances to keep you accurate.

Programs like FreshBooks or QuickBooks have a learning curve that can be pretty steep, but are all-in-one: invoicing and accurate record-keeping that are worth the price of admission if you take the time to acclimate.

Whatever method you choose can’t be ignored, but – if you’re rigorous in defending the streams – should become a monthly check-in to categorize transactions instead of an annual nightmare of untangling them in the first place.

Sandi Martin is an ex-banker who left the dark side to start Spring Personal Finance, a one woman fee only financial planning practice based in Gravenhurst, Ontario. She and her husband have three kids under five, none of whom are learning the words to “Fidelity Fiduciary Bank” quickly enough. She takes her clients seriously, but not much else.