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Bookkeeping Basics for Small Business Owners + bookkeeping software | Episode 6 - Small Business 101 - YouTube
Channel: Gillian Perkins
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- Hey there and welcome
back to our free course,
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"Small Business 101."
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In today's episode, all
about bookkeeping basics.
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We're going to be covering first of all,
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the most important financial terms
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that you really need to know.
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Second, the most important
thing that you need
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to do for your business finances,
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third different software options you have
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for your business book keeping
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and how to choose which
one is right for you.
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And then finally the first
steps you should take
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to get your bookkeeping
on track for success.
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We all know that money has the potential
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to be a stressful thing in our lives
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and in our businesses as well.
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And these issues are compounded
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when our money isn't well-organized.
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So in today's episode,
I'm going to walk you
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through everything you need to know
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about the basics of business book keeping,
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so that you are on top of
your business finances.
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Okay, so let's get started
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by covering these basic financial terms
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that you should know to
understand your money
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and how it's organized.
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The very first one is asset.
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Your business's assets are simply
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the things that your business owns.
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This could be everything
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from money to inventory
to an office building.
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Liabilities are everything
that your company owes.
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So if you've borrowed money from a bank
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or you've bought inventory on credit
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then you will have the liability
of the debt that you owe.
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Equity is the part of the
business that you own,
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or what the business owes you.
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If you had shareholders,
it would also be the part
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of the business that is
owed to the shareholders.
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If you are the sole owner of your business
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then if you subtract your
liabilities from your assets
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then you'll find the total
value of your business.
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And since you own the whole
thing, that all is your equity.
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And that ties directly
into a balance sheet
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which is a financial report that you
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or your bookkeeper can
generate for your business
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that shows your company's balance.
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It shows your assets
minus your liabilities
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at a particular point in time.
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Next up we've got cash flow
and the cash flow statement.
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So quite simply, cashflow
describes the cash coming into
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and going out of your business.
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Now, what separates
the cash flow statement
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from the balance sheet
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is that the balance sheet
takes into account money
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that's owed to your business
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and money that your business
owes to other entities.
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But the cashflow statement is just focused
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on the real cash money that is coming into
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and going out of your business.
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Next, we've got the
profit and loss statement,
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otherwise known as an income statement.
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So this financial report shows
how much your business earned
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during a certain period of time
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and how much it spent, your
revenue and your expenses.
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And when you subtract
your company's expenses
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from your revenue, you will
get your profit or your loss.
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So what exactly is revenue?
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Well, it's all the money that
was paid to your business.
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All the money that came into your business
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during a certain period of time.
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Whether it was cash or
whether it was purchases
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that were made on lines of credit.
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Revenue can also be
referred to as gross profit,
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net profit on the other hand
or sometimes simply profit
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is what you get after you subtract
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the expenses from the revenue.
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In other words, your
business earns some money
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and you spend some money
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and how much do you have
leftover that's your profit?
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And to wrap up these definitions
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the last two are accounts
receivable and accounts payable.
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Accounts receivable just is money
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that is owed to your company
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and accounts payable is money
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that your company owes other people.
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All right, so now that you understand
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what these top 10 financial terms mean
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now let's talk about the very,
very most important thing
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that you need to do to
set your business up
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for financial success.
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You can do this on day one
of starting your business,
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and it's simply this.
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You need to keep your business
money completely separate
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from your personal money.
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If you don't do this,
not only are you going
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to create a massive organizational
headache for yourself,
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you will also have
trouble paying your taxes
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and you will have a lot of trouble telling
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how well your business is actually doing.
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Because you won't be able to see
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how much money you're spending,
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you won't be able to see how much money
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the business is really making.
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So from day one, keep this
money completely separate.
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Keep every dollar that you spend
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on your business coming out of
just a business bank account
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or at least a pile of
cash that you've set aside
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from your business at
the very, very least.
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Now you might be wondering
how you can do this
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when your business initially
doesn't have any money.
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How can you spend your business's money
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that doesn't have any?
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Well to do that you as the owner will need
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to make an investment into the company.
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So you'll take a certain amount of money,
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whether that's a hundred
dollars, a thousand dollars
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or a hundred thousand dollars
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and you are going to put it
in your business bank account
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and then you'll spend
the money out of there.
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But you'll have a record
of that transaction,
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that investment that you
made into the company
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and that will be your owner's equity.
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So in order to keep your
business money organized
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and track all of your transactions
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you're going to need
some sort of software.
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Well, I mean, you don't have
to have some sort of software,
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you could just use a piece
of paper and a pencil
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but in this digital age where we have
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a lot of online transactions
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most likely you'll want
to use some software.
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So let's talk about
your different options.
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The most popular one
is gonna be QuickBooks.
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What is nice about QuickBooks is not only
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is it a pretty good bookkeeping software,
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but everybody uses it.
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And so if you go to a bookkeeper
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after you've been in business for a while
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or an accountant, most
likely, almost certainly
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they will be able to use
your bookkeeping software.
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They will be able to just log right
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into your QuickBooks account.
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There'll be no friction at all.
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And the same goes, if you switch
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to a different bookkeeper later on.
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Now, alternatively you might
consider using a FreshBooks.
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What's nice about FreshBooks
is a lot of people
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like it a little bit
better than QuickBooks
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and it's significantly more affordable.
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The problem is that not everyone uses it
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and so some bookkeepers or
accountants might not be familiar
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with it or might not support it.
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Another alternative you can
consider is called Wave,
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which is a completely
free bookkeeping software
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that works very well.
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Now it doesn't have quite
as advanced functionality
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as FreshBooks or QuickBooks does
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and you definitely will
find that most bookkeepers
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and accountants won't prefer it.
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And many won't support it at all
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simply because it doesn't have
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a lot of the more advanced
functionality that they'll want.
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However, if you're just getting started
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and you're on a budget
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and you are going to be
doing everything yourself
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then feel free to go ahead and use Wave.
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The final option I wanna share
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with you is actually my favorite,
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my recommended option
when you're first starting
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and that is a simple spreadsheet.
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Now you could use any
spreadsheet software,
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personally I like using Google
Sheets, but any will do.
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And you can simply track your expenses
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and your revenue on this spreadsheet.
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I like tracking these two things separate.
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So I'll create a sheet
that has a tab for revenue
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and then another sheet that
has the tab for expenses.
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And later on, you can add
additional sheets as needed
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if you want to track other aspects
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of your business finances.
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When you're first starting out
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you will have a pretty small
number of transactions.
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And so logging in and manually entering
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each of these isn't
going to take a whole lot
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of your time or be a big hassle.
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And I really think that you will have
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the best understanding
of your business finances
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and will be in the best
position to be able
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to be the leader of your company,
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if you understand where
every dollar is coming from
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and where it is going.
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Now, of course, if you're
someone who just has
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a really hard time tracking your money
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and staying organized then
you might wanna use one
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of these other softwares like FreshBooks
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or Wave or QuickBooks.
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So that things can be a
little bit more automated
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because I'd rather have you be organized
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than have you not track your books at all.
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But ideally I'd have you be organized
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and also be closely in
touch with your finances.
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So finally, let's wrap this up by talking
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about the first steps you should take
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to get your business finances on track.
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First, I want you to go to the bank
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and open a business bank account.
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You can do this locally or online
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but by opening a business bank account
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you will be able to easily keep
your business money separate
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from your personal money.
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Now, if you are first starting out
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and you haven't even registered
your business name yet
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then it can be difficult to
open a business bank account
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because a lot of the time they will want
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your business registry number.
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However, as an alternative,
you may be able
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to open simply a separate
personal bank account
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that you can use exclusively
for your business.
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Long-term you'll probably want to open
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a real business bank account
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but at least this way your
money will be separate
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and a lot more organized.
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And then the second thing I
would recommend you do right
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at the start is to create a spreadsheet
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to track your finances.
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Now, if you know you're going to be using
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a different software then you can go ahead
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and set up your account
with that software option.
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But if you're not quite sure
which one you wanna pick
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or you just wanna stick to the spreadsheet
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for a while, set up your spreadsheet
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setting up that tab for
revenue and a tab for expenses.
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And then every single
time you have any sort
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of transaction log in there
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and instantly record those details.
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This video is episode number six
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of our free series, "Small Business 101."
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If you are working to
start your own business
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or you're planning to
do so in the near future
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then be sure to subscribe to the channel,
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to get access to all
of our future episodes.
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For a complete guide to setting up
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your business finances from scratch,
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join us inside our Startup Society.
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Membership is very affordable
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and inside the program we
have a complete module devoted
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to this exact topic, setting
up your business finances.
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To create this module, we've partnered up
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with a Virtual CFO Susan Boles
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who explains everything
so simply and easily
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and yet covers everything
you need to know.
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Startup Society membership
starts at just $49 per month
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and includes access to our entire platform
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of business training courses.
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So it's a great affordable
way to get access
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to the information you
need to turn your business
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into a success.
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All right, well that is
everything for today's video.
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I hope that you enjoyed this
and found it really helpful,
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if you did, be sure to give it a thumbs up
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and I'll see you guys
back here again next week.
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(soft upbeat music)
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