When we opened our first restaurant, I became the designated numbers person. After all, I had a good college education and since my dad had put up the money, I felt I should be accountable to him. My partner was the creative force, but he also understood food cost and labor cost and had an idea of where things should be.
The restaurant we purchased came with a computer. The accounting system loaded on that computer was Quicken, which was, I soon found out, completely inadequate for business. Quicken is a tool for personal accounting and if you are already acquainted with it, good for you. Won’t be robust enough here to get you where you want to be.
To start, go explore Quickbooks, either the online version or desktop. I like Quickbooks for small business owners because it is very user-friendly, the interface makes workflow smooth, it is easy to learn and there is tons of support from a large variety of sources. The advantage of online is that you can access it anywhere and you never have to purchase the upgrade. Also Intuit is spending a fortune on making it the best product they offer, and it has improved significantly from the product I once used to run my business.
The other really important part of either the desktop or online version is the plethora of products that integrate with it. So your banking information seamlessly integrates, as does your credit card transactions (purchases you make with your card). And most new iPad based POS systems are integrating with Quickbooks now, so you can easily download your daily sales. You can spent less time with paperwork…YES!
When I started this first venture, I had an allergy to accounting. My disclaimer: I failed my accounting course in college, and it nearly prevented me from graduating. I’ve come a long way. Now, accounting is something I’m very comfortable with but it’s taken more than 15 years. It shouldn’t take YOU that long! So let’s make it simpler and hopefully, this little tidbit of information will cause light bulbs to go off.
Imagine your business is a set of buckets. Each of these buckets will represent an “account” in your accounting system. Accountants call this the “chart of accounts”. The water going into these buckets represents the value of your business. Some of these buckets will be dumped out (expenses) and some of them will remain mostly full with a little leak in them (depreciating assets). Others you hope will keep getting bigger (equity).Embed from Getty Images
When you begin your business, you open a bank account. Here is your first asset! You fill that bucket with water. And from that asset you are going to purchase Furniture & Fixtures, Leasehold Improvements, Equipment, Inventory, etc. You get the idea. These will be called your ASSETS, and they are also Balance Sheet accounts. If you imagine the bucket called your bank account has water in it when you purchase these things, water gets poured out of your bank account bucket and into the assets buckets. This is all that your business is worth.
Who put that money in the bank account? You? Investors? Was it a loan? Here comes the second part of the balance sheet accounts, the one’s that “balance” out the first part. Liabilities and Equity balance out the Assets…this is part of the brilliance of double entry accounting. The water in your buckets needs to remain balanced…if it comes out of one bucket, it goes into another. If you received a loan to put money in that bank account, it is a liability equal to the amount of money in the bank. If it is someone’s investment, it is equity equal to the amount in the bank. That represents how much skin that investor has in the game.
Next Part: The Income Statement, AKA Profit and Loss