Monday, January 16, 2012

New Year's Resolution

I gave up making New Year's resolutions a long time ago. Maybe it was because I chose goals that were unreachable or perhaps they were goals I simply didn't really believe in. Either way I found failing at my New Year's resolution disheartening and so I just stopped making them.

For the first time in years, after much thought and some goading from PeterC, I made a New Year's resolution. I decided I was going to change the way I have been keeping the accounting records of my business, Chestnut Tree Creations, on Etsy. For the last three years, since I opened the store, I've been tracking money spent on everything and money coming in from the store, but I didn't know how to calculate whether I was actually making a profit or not. If my old way of doing things was any indication I was $20,000 in the hole and that just didn't make sense.

Here is where the goading comes in. PeterC suggested I learn and use double entry accounting to record everything. He tried to show me how it worked but I wasn't able to grasp the concept. I have since decided that he and I speak a different language when it comes to mathematics and general concepts. We needed an interpreter who speaks both languages and could teach me to speak the same language as PeterC.

I, of course, headed to the internet. After two very frustrating days of reading page after page of accounting 101 and basic book keeping rules, I knew some of the terms but I really didn't know how they linked together. So back to PeterC I went, but again we failed to clearly communicate. I don't do well with simple hypothetical numbers, preferring real world examples. PeterC, like all teachers prefers to simplify the numbers to make everything come out all neat and tidy in the end.

Luckily we have a friend who is an accountant and he was more than willing to trade his knowledge of accounting practises for some custom sewing work. Our friend spent an entire evening going over basic ideas of accounting and he used examples from my business to give the ideas some real world meaning. It turns out he is a very patient man and was perfectly willing to repeat the same answers over and over again in different ways until I finally got it. So back home I went with my head full of knowledge and a ream of notes. I was convinced I would be able to set up a few pages of spreadsheet to track my business records.

The next day, it was way to late for me to work on the books the same evening, I pulled out my notes and found out that I only understood about half of what I had written. Oh, the writing was legible but the combination of words didn't make much sense especially when compared to the information in my head. But I did have enough information to at least know what I was looking for on the internet so I pulled up my spreadsheet program, my internet search engine, and started building a set of accounting spreadsheets.

A couple of days, and 18 spreadsheet pages, later and I had something that looked like it would work. I sent a copy off to our friend to look over and I made my first attempts at using the new books. That resulted in some changes and a few more pages to be added to my books, but over all I was pretty happy with the end result. A few days later my accounting tutor pointed out some changes that he thought should be made.

That was Saturday. Yesterday I sat down with my spreadsheet, his spreadsheet, and poor dear PeterC at my side and finalized my accounting records template. We ended up making several changes that resulted in 24 sheets in my workbooks, but I think it will be a more accurate way to tell which items I am loosing money on and which I am making a profit on.

My initial test entries, based on my year ending inventory, depreciation, and the few sales I have made already suggests that not only will the books work but I will even make a profit this year. It will be nice to see a profit, even if that does mean I have to register as a company and pay taxes. It will be an accomplishment and the realization of one of my goals - to own my own company selling things I make.


Storm Of Angels said...

You stuck with it and did it! :)

Carolyn's Solutions said...

Congratulations. Keep up the good work. Questions -- why not use a box program like Quicken Books?

Dee said...

My accountant friend suggested that as well. So I spent several hours trying to download a trial version of several different brands to see which one would cover everything I needed to do and track inventory.

Unfortunately every single brand I tried the free trial button lead to a dead link or a busted database. That did not fill me with a lot of confidence on the products offered so I decided to do it the old fashioned way.

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sarina said...

I'm an accountant.. I can feel your pain figuring this out. There are programs you can buy like quicken that do the heavy lifting.. if you are going to file taxes "like a business".. it would be worth the investment... since it will help translate things to tax software easily.

Dee said...

My friend has made sure to emphasize the need for a software program because an accountant will not accept my current set up. However, I don't feel the need for software until I actually start making enough profit to file taxes. Here's hoping I make 2000 in profit this year!