We have all heard, "You have to spend money to make money."  In business the money spent is often referred to as an expense.  What is an expense?  The IRS describes it as:  "Business expenses are the cost of carrying on a trade or business.  These expenses are usually deductible if the business operates to make a profit."  If you spend money to operate your company it is most likely an expense.  Some examples include:  advertising expense, rent expense, wage expense, office supplies and interest expense.  You want to increase income and reduce expenses.

When I was in elementary school I loved the Great Brain series by John D. Fitzgerald.  The books mainly focus on Tom D. Fitzgerald,  John's older brother and their childhood in Utah.  The other day I noticed "The Great Brain At The Academy" on our book shelf and could not resist the urge to pick it up and read it.  I was amazed at the business lesson's taught in the book.  Here are ten lessons I learned from the Great Brain.

1. Identify opportunities
2. Ask questions
3. Watch others
4. Risks are good
5. Associate with the right people
6. Take responsibility
7. Provide solutions
8. Be honest
9. Willing to change
10. Use your strengths

I recommend getting a copy of the book and reading it.  Check the children's section of your local library.  Tom was a fantastic entrepreneur with a knack for making money.   The book is still great and I came away with a new appreciation for TD and his great brain.

Now for the fun stuff!  Everyone loves income, the more the better.  What is income?  Income is often referred to as revenues on the financial statements.  The official definition from the International Accounting Standards Board (IASB) is:  

Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity other than those relating to contributions from equity participants. 

Did you get all that?  Income for a basic small business is revenue or money received from selling your service or product.  If you priced your service or product correctly this will increase your cash in your bank account which should increase your equity in the business.  You have to love accounting!

One afternoon during a busy tax season the receptionist buzzed me and told me my next appointment was here.  I walked into the lobby to greet them and had to hold my breath to keep from laughing.  You always hear about the shoe box full of receipts someone brings into the accountant to prepare their taxes.  On this day it was not a shoe box but an actual wooden dresser drawer full of receipts.

Want to have less stress and a happier life?  Good bookkeeping can go a long way toward reducing your anxiety over financial matters.  You may not always be pleased with the results, but you will be able to make decisions based on the information, and dresser drawers are difficult to carry in your pocket.

Here are five bookkeeping tips to help you get started.

• Do it!  
  

This is the most important tip in bookkeeping and in life for that matter.  If we never start the process we will never realize the benefits.  Jennifer Kunst, Ph.D, wrote an interesting article on this subject:

Being successful is difficult and takes courage to change.  Many people desire to be financially free but are unwilling to do the work which is required.   You must be consistent in the effort put forward and be aware what needs to be done.  Start now, do not procrastinate.

• Use a budget
  

Budgets are amazing.  If used correctly your budget will help you make money.  They will help you evaluate your current spending, help you set goals for your future and help you track where your money will be spent.  At the beginning of the year complete a simple budget for each month.  Each month compare your actual results with your budget numbers.  If problems appear they say, “fix me.”  You are able to take action and correct immediately.    Each month as you adjust your spending to optimize your results with the budget you will spend less and will increase your bottom line.

• Know your cash balance
  

This may seem obvious but do you know what your cash balance is?   Check your cash balance everyday and know what transactions have not cleared the bank.  Do your bank reconciliation every month.  On the first day of a job I was asked to get the bank reconciliations caught up, they had not been done for over a year.  I spent weeks working on them and in the end had to make some sizeable “adjustments” in order to balance.  This company struggled with cash flow and one of the reasons was they did not know their actual cash balance.  You must know your cash position and manage it accordingly.

• Get help
  

Guess what?  Your spouse does not want to keep the books.  I know it is hard to believe. Too many spouses do it and in most cases it does not work.  Do not wait until your tax return is due and ask your tax preparer to clean up the mess.  Get someone involved on a daily, weekly or at least monthly basis.  Ask your tax preparer if they would recommend someone or ask other business owners for suggestions.  A qualified bookkeeper will make your life easier which will make everyone happy. Once you have someone helping with the books ask questions and expect answers you understand.  It is your responsibility to make sure the bookkeeping is in order.  Do not assume. If you do not know, ask.

Everyone wants equity in a company.  Equity is what the shareholders or owners in a business are owed after all liabilities are paid.  A simple example is your company sells $1,000 worth of items and you paid $600 for the items.  The remaining $400 would eventually end up in the equity account.  The legal structure of the business will determine which equity accounts are used.  These may include owner's capital, owner's draw for a sole proprietorship or capital stock, common stock, and preferred stock for a corporation.

Now for liabilities.  In general liabilities in a business are amounts owed to others.  These may include:  accounts payable (invoices to vendors), wages payable, payroll liabilities (payroll taxes owed to federal and state agencies), sales tax payable, customer advances, bank loans, credit card payable and notes payable.  These are just a few examples of liabilities a company may have.  If your business owes money to someone else you have a liability. 

The chart of accounts is divided into sections to help keep your books in order.  The basic sections are:  assets, liabilities, equity, income and expenses.  Each section contains similar accounts which are grouped together to help form the financial statements.  These financial statements help you make decisions concerning operating the company.