Record Keeping

It is said that John D. Rockefeller kept track of every single penny spent from the age of sixteen until the time he died at age 98. Talk about good (and long) records!

As an entrepreneur and business manager, it is essential to understand some basic principles of proper record-keeping, more commonly referred to as accounting. Later on, you may choose to hire a private accountant to keep track of financial records for you.

To start off, you should know how to read and use a ledger sheet. A ledger sheet is a way of keeping organized records of all business income and expenses. It is a good idea to also keep a separate ledger for recording all personal expenses that are incurred through doing business (such as travel and accommodations).

On a ledger, all income is recorded as a credit entry. Income includes money received from the sale of goods and services. Expenses are recorded as debit entries and include all of the costs of doing business.

Here is a sample format of a business ledger with all the recommended elements. In this example, Stacy has decided to start her very first business—a lemonade stand. She will sell each cup of lemonade for 25 cents and operate her business only on Saturdays. As you can see, start-up costs can add up to quite a bit. (Note: some things you may already have and may not need to purchase. In this case, Stacy does not need to purchase a pitcher, spoon or markers for her sign because she already has them.)

(Page 1)

Stacy’s Lemonade Stand
Date	Explanation	To/From	Cash Received	Cash Disbursed	Cash Balance
1/1					$20.00
1/1	Lemons	Grocery Store		1.99	18.01
1/1	Sugar	Grocery Store		2.19	15.82
1/2	Table and Chair	Garage Sale		3.00	12.82
1/4	Poster Board	Wal-Mart		.99	11.83
1/4	Disposable Cups (200)	Grocery Store		5.00	6.83
1/6	Sold 22 cups	Park	5.50		12.33
1/13	Sold 38 cups	Park	9.50		21.83
1/20	Sold 19 cups	Park	4.75		26.58
1/22	More Lemons and Sugar	Grocery Store		4.18	22.40
1/27	Sold 33 cups	Park	8.25		30.65
Totals			28.00	17.35	30.65

(Page 2) (NOTE: The rows should correspond to the rows above)

Stacy’s Lemonade Stand
Startup Investment	Revenue (1)	Cost of Goods Sold (2)	Operating Costs (3)
		1.99
		2.19
3.00
.99
		5.00
	5.50
	9.50
	4.75
		4.18
	8.25
3.99	28.00	13.36	0.00

Next comes the income statement, seen below:

Income Statement

Revenue (1) 28.00

Less C.O.G.S. (2) 13.36

Gross Profit 14.64

Less Operating Costs (3) 0.00

Profit 14.64

Taxes 0.00

Net Profit 14.64

Also, to calculate your Return on Investment (ROI), simply follow the following formula:

ROI = Net Profit / Startup Investment

( ROI = $14.64 / 3.99 )

( ROI = 367% )

(In the above example, Stacy did not have to pay taxes because she had not generated substantial income. However, this will usually not be the case and you must account for taxes.)

Now carefully observe Stacy’s ledgers above. Then ask yourself the following questions:

· In one month, how much profit did the lemonade stand generate?

· What was her ROI?

· Was the profit worth the effort?

· Should Stacy consider raising or lowering the price of her lemonade?

Financial records can help you evaluate how your business is doing if you ask yourself similar questions. From the above example and tables you should know enough to start keeping your own records. However, here are some additional helpful hints to keep in mind throughout your business transactions:

· Always get a receipt for every purchase you make. Keep these organized somewhere—even a shoebox will do. These receipts will be valuable when it comes time to file taxes because many business expenses can be counted as tax deductibles.

· Always give your customer an invoice (or bill). You can do so by purchasing a carbon-copy receipt book. Once the bill is paid, you should mark it as “PAID” along with the date it was paid.

· Collect cash as soon as possible.

· Delay paying bills as long as possible, but be careful not to irritate the supplier.

· Always know your cash balance (cash receipts less cash disbursements over a period of time).

· When your business is up and running, consult a certified public accountant (CPA) to look over your financial records. This should be done at least once a year. (You can find a CPA through www.cpafinder.com).

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If you’d still like to learn more about business record keeping, finances and accounting, you can consult the following resources:

The Complete Guide to Money and Your Business by Robert E. Butler and Donald Rappaport (Englewood Cliffs, NJ: Prentice-Hall, Inc., 1989).

Accounting the Easy Way, 3^rd Edition, by Peter J. Eisen (New York: Barron’s Educational Services, Inc., 1995)