Basic bookkeeping

Bookkeeping helps you understand where your money comes from as it enters your business, shows where it goes, and how much you're making. Profit is how much money is left after you pay all your bills.

Step 1: determine how you'll track funds coming in and going out 

There are two main ways to do accounting-the accrual method and the cash method. The accrual method is more complex and focuses on when you take on an expense or earn money. For example, the moment you receive your credit card bill, that amount would be subtracted immediately, instead of when you actually pay the bill. If you use the cash method, the amount would be subtracted when you pay the bill. The cash method is easier because it's based on when you pay or receive money.

Let's look at income. Imagine a child is in your care for a week, and you tell the parent they owe you $300. Using the accrual method, that $300 would be considered income at that time. With the cash method, it would not be considered income until the parent gives you the check and you deposit it. For most child care businesses, the cash method is simpler because it lets you know when money is coming into and going out of your account. 

Step 2: determine how you'll record your transactions

Now you'll need to decide how to record your transactions. Many child care businesses can record transactions on paper or on a computer spreadsheet. 

Start with your income. Decide what the main sources of money are for your business. Parent fees will likely be one and another might be a child care payment or money from a food program. You might get extra money for students after school or from grants. Each of these should be a separate income source to keep track of.

Next, list your expenses. These may include salaries, cleaning supplies, rent, repairs, and other things specific to your business. You don't need to list every category. If you have too many categories, it can be confusing and hard to keep track of. Use the lists below as examples for how to sort your income and expenses:

Income categories 

• Tuition
• Subsidy
• Fees
• Food program
• Grants
• Other 

You can use this example list to categorize your expenses: 

Expenses Categories 

• Personnel
• Taxes
• Rent
• Utilities
• Phone
• Food/snacks
• PPE
• Cleaning
• Loan payments
• Bank fees
• Other 

Step 3: set a schedule to record and review your transactions 

Update your records at least once a month. Start by looking at all your income sources including cash, credit card and application payments like Venmo or Zelle, and checks that people wrote to you. Enter each of these into your income list on your spreadsheet. Next, you'll record expenses. Look through your receipts, bank or credit card statements, and bills from people you paid. 

After you record all your income and expenses for the month, add up each category. Then, subtract your expenses from your income. This shows how much profit you made that month. You might want to take some of that profit out or leave it in the business in case you need it later, or to help pay upcoming bills.

Use these templates to record and track your monthly revenue and expenses: 

When you sort and file your receipts, label them to help you remember which category they belong in.

After you start paying yourself, think about which business structure works best for you. Some business structures, like an LLC, separate your personal and business identities for liability reasons. Becoming an employee of your own company can also have tax benefits. You should talk to a lawyer if you are interested in this type of business structure.

Make a regular schedule to update your records monthly, every other week, or weekly and consider using a computer system for your tracking.

Disclaimer

The information contained here is for educational purposes only and is not intended to constitute legal, tax, or financial advice.