In a previous business of mine, we had a lot of clients that were real estate investors. They came to us looking for credit so they could put money down on their next property or have some working capital for their current projects. It became very apparent real quickly that most of them were “spending their nights and weekends fixing up the old place down the street”. (their words not mine.) This was a hobby to them. They had heard of people making good money in the Real Estate Game but this wasn’t their business. They work for “The Man” every morning at 8 and came home at 5. How could they be business owners?

In order for us to get them sufficient capital to accomplish their goals, their paradigm needed to shift. They had to start treating themselves as business owners. They were business owners in every sense of the word. There were just certain things they didn’t have in place to feel like business owners.

Here’s my point – Real estate investors are business owners and SO ARE BLOGGER!

I knew my title would get some of you to read my post. I have spent the last few years trying to convince people like real estate investors AND bloggers to treat themselves as business owners.

So the question is, how do you treat yourself as a business?

• The Right Entity. Choosing an entity is a tricky task and shouldn’t be taken lightly. I would HIGHLY recommend consulting with a CPA or Legal Council before choosing a structure. (OK – there’s my disclaimer). The most common entity structures are: Corporations, Limited Liability Companies (LLC), Partnerships and Sole Proprietors. Each type of structure offers the business and the owner certain tax advantages as well as legal protection. I imagine that most weekend bloggers are sole proprietors. There’s nothing wrong with this. There’s no major paperwork that has to be files with the state and no separate tax returns that have to be completed, just an additional Schedule. It’s easy. If you are a sole proprietor, PLEASE, PLEASE keep good records. You want to make sure you can justify expenses that are truly business related and those that are personal. Enough said.

• Bank Accounts. Make sure you set up a bank account IN YOUR BUSINESS NAME. This will help you from “co-mingling funds”. (mixing personal and business money). this way you can get check with your business name and a debit card, maybe even a credit card. Your friends will think you are cool.

• Licensing. If you are a sole proprietor and you want to get a business loan, in most cases you are going to need to show a business license as proof of your existence. Here’s a side note – Lenders are also looking for history, typically 2 years in business. The earlier you can get a license, the “older” your company looks.

• Accounting Records. Make sure you keep up with your bookkeeping. It might not be much when you first start out, but you will have some…especially expenses. Here’s some examples, the money you spent on your domain name, your monthly hosting, memberships to “blogging related” groups, magazines and books for education (again, blogging related),your advertising, your car mileage, your monthly banking fees for your business accounts, your office space, your employees or 1099 writers, etc. The list goes on and on. It’s extremely important for you to keep up with it. It might only take 10 minutes a day or 10 minutes a week. However long it is, just make sure it get’s done. You can use bookkeeping software like Quicken or QuickBooks, OR you can just set up a simple spreadsheet until you grow a little.

Of course this list is far from being all-inclusive, but it’s a start. I can’t stress it enough that this is a business my friends and should be treated as one. You need to treat this as a business and take the necessary steps to make sure others view it as a business too. This will make your life a lot easier when tax time roles around or when you try to secure additional capital from banks. And of course, your friends will think you are cool. You’re a business owner!

Here’s why…

Accounting can be seen from 2 different views. The first is from the eyes of the non-accountant. Words that enter their minds are boring, mundane, an expense, required, structured, records, paperwork, confusing, taxes, CPA’s, nerds (I can say that, I’m an accountant), etc. For the average free-spirited and creative entrepreneur, accounting rubs the wrong way.

The second set of eyes is from the accountant’s point of view. Again, words that enter OUR minds are important, decision making tool, structure, decision making tool, analyze, decision making tool, accountability, decision making tool, etc. We are nerds. I will be the first to admit it. I’ll also be the first to admit that all of us, in some form or fashion, have at one time, wanted to cross over to the dark side of entrepreneurship but our structured and nerdy ways of thinking won’t let us. It’s best if we leave that side of the biz to the creative type.

The non-accountants, however don’t have that luxury. You have to cross over and see our world at some point. It’s just the way it has to be. If you take some time to learn how to account for your transaction, you can literally turn your financial statements (the reports created from record keeping) into powerful… I really mean powerful decision making tools.

Here’s how this blog is going to go from here on. In the next post, I’m going to share some examples of poor business decisions that could have been avoided if proper analysis had been done on the Finance statements. After that, I’m going to teach about some bookkeeping essentials that will be easy to understand and apply. Believe me, you don’t have to have a degree in this crap or be a genius to understand this. I’m going to make it easy. I’m going to make bookkeeping exciting and fun…okay maybe I’ve gone to far. I’m going to make it easy.

Stay tuned!

Now the fun begins. If you haven’t started already, you need to begin accounting for every penny that goes out, comes in or just sits there in your business bank account. In the beginning, this task can easily be done with a spiral-bound notebook. When you start acquiring customers everyday instead of once a week, then most likely that notebook just won’t cut it anymore. You need a good accounting package; a system that does most of the work for you.

My first company was an accounting service firm where I worked with startup’s and offered a wide range of accounting and financial consulting. I used a number of software packages to track both business and personal finances for my clients. If you are just beginning to track your income and expenses, I would recommend getting a copy of QuickBooks. It’s easy to use for “non-accountants”. It’s quick to learn the program and it’s affordable.

A simple system like this will save time and headache as your business grows

It only takes 30 minutes to 1 hour a day MAX, for most small business owners, to update their accounting records. This pre-selected time will ensure you have accurate records and will help you make better business decisions during the year.

I had a bookkeeping client a few years ago that didn’t keep up with his records. He operated a very small retail shop in my home town and only recognized about 10-15K per month in revenue. His books were in shambles and it didn’t take long before I realized he had been losing money.

When I started, he handed me 2 years of bank statements and a box full of receipts. Fortunately for me, he didn’t use cash for any of his purchases so the receipts were duplicated in the bank statements and I didn’t have to rummage through the box to try and make sense of the mess.

After about a week I had his books updated. When I sat down with him to go over the financial statements, he immediately noticed that one of his major reseller accounts wasn’t being recorded. After a little investigation, we realized that this reseller had been selling my client’s products for 2 years. My client would drop ship the product(s) and then was supposed to invoice the reseller. Once the invoice was received, it was paid and the cycle continued. My client hadn’t invoiced the reseller for 2 full years. The amount of money that should have been collected was about 1K per month, which isn’t a staggering number by itself, but is mind-boggling when compared to the total revenue collected each month. It represented about 5-10% of his total revenue.

Lucky for me, I approached the reseller and brought this to his attention. He had no idea. I offered to clean up the mess and consequently got another bookkeeping client.
If the account records for both parties had been maintained each month, my first client could have collected an additional 1K per month and my second client wouldn’t have been stuck with a 24K bill which was due in full and not spread over 24 months.

Chalk this up for a lesson learned and keep up with your bookkeeping. When April 15th roles around, both you and your accountant will be glad you did.