The book The E-Myth Revisited makes some amusing points about small business owners. Almost to a man (or woman), they loathe accounting. They may enjoy marketing or creating new products or services, but keeping track of expenses, invoicing and the like? It’s the last thing they really want to do, which leads to the usual habit of procrastinating by shoving paper receipts into the proverbial shoe box, then presenting the whole shooting match to their accountant once a year.
But no accountant I know will accept such an arrangement, or if they do they’d have to charge a prohibitively high rate for the service. In practice — and I base this on running a personal corporation since 1999 — you at least have to put all the receipts and paperwork into folders representing the major expense categories, then summarize it all on a spreadsheet so the accountant can make some sense of it.
At one point, I experimented with shrink-wrapped accounting software, which typically cost a few hundred dollars. But I was never comfortable with it so stuck to the shoebox-and-spreadsheet routine. Until this summer, when courtesy of the very helpful folks at Knightsbridge, I discovered Accounting by Wave.
This software has several good things going for it. First, it’s free. Second, it’s cloud-based, so you can store all your info on “the cloud” and access it from whatever computer you have access to: there’s even an iPhone app. Third, it’s Canadian. And fourth, it’s relatively intuitive and easy to use. What more do you want?
Not surprisingly, the software has 1.5 million happy users, most of them the small businesses, consultants and freelancers the company has targeted. And wouldn’t you know it, right off the topic they promise “shoebox accounting stops now.”
Integrated with your business bank account
The software lets you input your corporate bank account information so right off the bat payments to your account and disbursements from it are automatically recorded. You’ll have to spend some time reconciliation expenses incurred via credit cards, cash disbursements and the like but an hour spent every week or two should suffice for most home-office setups like mine. And it sure beats dreading the annual spreadsheet ritual!
The software is quite proficient at keeping track of customers and invoicing, and it generates various reports on demand that show the current expenses, payments and accounts receivable. And yes, it lets you add HST. Again, there’s an element of garbage in, garbage out here, so the reports will only be meaningful if you’re staying on top of all the transactions and properly categorizing them.
How does this relate to Findependence Day?
Glad you asked! If you’ve followed this blog since May, you’ll know I believe in creating multiple streams of income, whether you’re gainfully employed, semi-retired or even fully retired. Part of that is Internet-based: refer to Robert Allen’s book, Multiple Streams of Internet Income, or any of the three books by Scott Fox. (His site is here, and latest book here).
But the other piece of the equation is running your own business and keeping track of all the moving pieces. As I’ve come to appreciate, a traditional “job” really comes down to serving and satisfying a single client, which in practice means “your boss.” The traditional corporate or government job largely shields the employee from accounting: all you need to worry about is submitting the annual T-4 slip with your annual tax return, claim the usual deductions and hope for a tax refund at the end of it.
The good thing about self-employment is that (hopefully) you don’t have any boss but yourself and instead of one huge mega-client, you have many smaller clients. You may lose one from time to time but the others can keep the ship afloat until another replaces it. Seen that way, a “job” is the opposite of diversification: you have all your eggs in one basket and if your boss decides to smash that basket, you’ve got trouble.
This cloud-based software is a real boon to keeping on top of your business. Hopefully, all your earned income from multiple clients or products or services constitute a major part of your revenue stream. Of course, you should also have investment income, emergency savings and pension income (depending on your age), so that your “Findependence” isn’t riding on any one of these.