There aren’t many things I’d rather be doing than accounting.
Okay, well… actually…
…now that I think of it there are quite a few things I’d rather be doing than accounting.
- Juggling porcupines
- Taste testing cardboard
- Listening to Itsy Bitsy Teenie Weenie Yellow Polka Dot Bikini on repeat.
Are you with me or are you with me?
Here’s the deal though: if you’re working to build your blog into a business then you need to treat it like one. That means doing a good job with your accounting.
While I don’t like spending time in Excel or QuickBooks, I do like knowing that our books are in order and that we’re keeping track of our income and expenses.
So how do anti-spreadsheet people like Lindsay and I manage to keep our books in order?
We do it by using a system I call Zen Accounting for Bloggers.
It’s a simple system that we developed over the past few years. This system allows us to keep really clean books while spending less than 30 minutes a week on taxes/accounting/bookkeeping.
And today I’d like to share that simple system with you.
This is the post that I wish would have been written when I was trying to figure out all this blog accounting/bookkeeping/businessy stuff out almost two years ago.
One quick thing. I’m not a tax professional, accountant, or lawyer. Those folks know a lot more about this stuff than I do…and they probably won’t use the word “folks,” which adds to their credibility.
Bottom line: Check in with a professional before making any big decisions.
Before talking about the system we use we need to talk about setting your blog up as a business.
Structuring your blog as a business
It was about two years ago that Lindsay and I realized that Pinch of Yum had officially grown into a business. The blog had just had its fourth straight month of making over $4,000. It was on pace to make more than Lindsay or I had ever made in our 9–5 jobs.
“Let’s make this thing an official business!” I thought. “I’ll just call our bank and setup a business bank account tomorrow. ”
Nope. Not quite that simple, Bjork.
There were actually a few things we needed to do before declaring Pinch of Yum a “real” business.
The three basic parts to our “blog as a business” setup
- Establish the blog as a business entity (we went with an LLC).
- Apply for an EIN (Employer Identification Number).
- Setup a business bank account.
1. Establish the blog as a business (we went with an LLC)
LLC stands for limited liability company. The idea with an LLC is that you’re limiting your liability.
For a blogger, the main advantage with an LLC is that it helps to separate your personal finances and your business finances.
Is it possible to not have an LLC and just keep track of income and expenses that are associated with your blog?
Is it a good idea to do that?
Because, in theory, if something happened with your business (i.e. your blog) that resulted in a lawsuit then all of our personal belongings (house, car, etc…) could potential be taken from you.
That’s why it’s better to limit your liability and setup an LLC. This will create separation between your personal stuff and your business stuff.
I filled out the LLC paper work through the State of Minnesota website. It was submitted online and cost $155 dollars.
You can also use a company like LegalZoom to get help with setting this up. I’ve never used the service but I’ve heard of a few people that have. There’s also always the option of doing it the official way and working with an attorney. 🙂
2. Apply for an EIN (Employer Identification Number)
An EIN is like a social security number for a business.
Before having an EIN we had to send our social security numbers to the companies we were working with. It felt so…unsafe. I’d put my social security number into a document, upload the document to an email, and blast it out off into the interwebs…
Agh! What a scary thought.
Who knows how secure that person’s computer was or if that document is still sitting in someone’s unsecured folder. Now that we have an EIN for our businesses we can use that number instead of our social security numbers.
We also needed an EIN in order to setup our bank account. I’m not sure if this is a requirements for all banks though.
We applied for an EIN using the IRS.gov online filing system. We did this after setting up an LLC.
3. Setup a business bank account
Once we had an LLC and EIN we moved forward with setting up our business bank accounts (one for Pinch of Yum and one for Food Blogger Pro).
The business account setup process is going to look different depending on which bank you use, so I won’t attempt to communicate how the process works.
We use a business debit card for 99% of all the purchases we make for Pinch of Yum and Food Blogger Pro. We prefer to use cash (i.e. debit) over credit, even if we get benefits or cash back from a credit card.
We have a generic “Pinch of Yum” credit card that we used when Lindsay was teaching. At that point in time, we had someone that was helping by occasionally doing meal prep and grocery shopping. We needed this support staff person to be able to make Pinch of Yum business purchases at the grocery store, so we opened a generic Pinch of Yum credit card with a low limit.
Setting up a business bank account is a really important step in the Zen Accounting for Bloggers system. You’ll see why in step #3. 🙂
Creating the Zen Accounting for Bloggers system
We had a lot of trial and error with our accounting system over the past couple of years. We’re finally at a point where we feel good with it. As I mentioned before, we spend an average of about 30 minutes a week with this current system.
Here are the things you’ll need in order to make this system work:
- Receipts folder
- QuickBooks Online
- Read-only bank account access for bookkeeper
- Monthly check-in
Here’s a handy graphic overview of the different steps of the Zen Accounting system.
1. A receipts folder
We have both a physical receipts folder and a digital receipts folder.
Physical receipts folder
Whenever we make a purchase for the blog we use the Pinch of Yum business debit card. We keep the receipt and put it in that month’s receipt folder.
The most common physical receipt comes from grocery store purchases.
When we go to the grocery store it’s common for us to check out twice. Once for items that will be used for the blog (we use the business card for this) and once for items that won’t be used for the blog (we use our personal card for this).
Digital receipts folder
The majority of non-grocery purchases that we make for Pinch of Yum and Food Blogger Pro result in a digital receipt. Whenever I get a receipt in my email inbox, I create a PDF version of it and save it into a “receipts” folder on my computer.
These folders are organized by month, just like the physical receipts folder.
When you keep records like this on your computer it’s important that your computer is backed up. Check out the four ways you should be backing up your computer and blog post to see how we backup our computers and blog.
2. QuickBooks Online
We use QuickBooks Online for our accounting and bookkeeping. The important thing here isn’t the QuickBooks part, it’s the online part.
Using an online (i.e. cloud based) accounting system allows our bookkeeper and accountant to have access to our accounting without us having to export or send files to them.
We just create a unique login for them that allows them to sign in using their own email or username.
3. Read-only bank account access for bookkeeper
Let’s break this down a bit.
First, a bookkeeper.
A bookkeeper is someone that, you guessed it, keeps the books. In other words, a bookkeeper is someone that enters in the expenses and income from your business for a certain month and makes sure that all of the transactions in your books (QuickBooks in our case) match the transactions on your bank statements.
A bookkeeper is usually different than an accountant. A bookkeeper will handle the day-to-day stuff, while an accountant will handle the higher level stuff like calculating your quarterly or yearly taxes.
Second, read-only bank account access.
Pinch of Yum has two different bank accounts. One is with PayPal and one is with a “real” bank. We’ve setup read-only account access for our bookkeeper with both of these accounts.
Read-only means someone can login to your account but can’t make changes. There are also certain areas (i.e. private information) that are blocked from viewing when an account is read-only.
Setting up read-only access allows our bookkeeper to login to our accounts and download the necessary statements without us having to do anything, which is one less thing that I need to remember to do (and one less confidential document that has to be emailed).
4. Monthly check-in
Once a month our bookkeeper sends us an email with any questions she has. These questions usually have to do with how to classify a certain deposit or expense.
Most purchases we make are from similar places. For instance, every month we make a payment to Amazon Web Services for hosting Pinch of Yum’s CDN.
FBP Members: You can learn how to setup a CDN for your blog by watching the W3 Total Cache course.
Our bookkeeper knows to put payments from Amazon Web Services into the “Software” category with a subcategory of “Domains and Hosting.”
However, sometimes there will be purchases or expenses that our bookkeeper doesn’t recognize. In cases like this she’ll email and ask how the item should be categorized. She outlines the items in question and I enter a note explain how the items should be categorized and email it back to her.
The once a year stuff
Once a year we meet with our CPA (i.e. accountant) to have our official yearly tax meeting.
There is usually minimal preparation that is needed for these meetings because we’ve been maintaining our books throughout the year instead of cramming to get all our info together at the last minute.
When should I start to do accounting for my blog?
The answer to that question largely depends on your answer to this question: Is your blog a business or a hobby?
The IRS will be suspicious of anything that you claim is a business but doesn’t actually create a profit, especially if it’s not creating a profit for a few years in a row.
However, if you’re starting to consistently create income from your blog then I’d suggest setting up a systems similar to this as soon as possible. You’ll be thankful you did once April roles around. 🙂
What about you?
Are there any other accounting related tips that you think are important for bloggers to know? Any ideas for improving this system? Any questions you’re still getting stuck on?
I’d love to hear your thoughts!
Thanks for reading.
Great post. So very helpful (and entertaining) as is all of your & Lindsay’s advice. Thanks so much for sharing!
Yeah, this is a sucky topic but one that needs to be addressed – so thank you, Bjork! 🙂
Ok, so, I do a really well with keeping track of expenses (and I really need to get an LLC set up, but don’t want to pay for it right now), but one thing I’m a little nervous about is the food expenses. What if I need to buy a bag of almond flour for a recipe – do I write off the whole bag even if some gets used for personal use? I’m wondering how you and Lindsay do it…
Great question, and a tough one to answer. This would for sure be a “check in with a professional” kind of question. 🙂
For us? If Lindsay buys something for a recipe then it’s a business purchase. We don’t separate out “business food” and “personal food” in our house though. We use the original intent of purchase to decide whether or not to expense it.
I do the same in this regard, but for a few basic things like eggs and milk, I usually rotate them on the business and personal purchasing.
Well this is an amazing post. Looking forward to the day when all of it will be applicable to Tomato Boots. 🙂 One question, and a fairly unimportant one: why don’t you use an awards earning credit card for all PoY expenses? You mentioned that you intentionally use a debit card over a credit card for 99%, but is there a specific reason for this? With the high dollar value of your monthly expenses, it seems like over time this could be a big missed opportunity. (Airline miles would help you and Lindsay get to conferences, there are come CC’s that have grocery store kickbacks or straight cash kickbacks, etc.)
Just food for thought!
I hear ya Chet! We could probably be cashing in a decent amount of awards.
That being said, I’m a big believer in super simple finances. It’s less about money and more about psychology. I like the idea that when we spend money it’s deducted from our account and when we make money it’s deposited into our account. Super clean and easy to track.
Bjork – Your philosophy on managing money resonates with me. It’s so refreshing to hear.
Also, I wanted to echo some of the others on Wave Accounting. I used to use Freshbooks, but it was $30/month. Now, I use Wave and it’s free (hello!) and it automatically pulls in my transactions from PayPal and the bank, I can upload scanned copies of receipts straight to it and can pull reports at the end of the year for my account. And, that’s all for my consultant business. It should work well for the blogging side of the house, also.
Hey Abi! Great to hear from you. 🙂 Super fun to connect at Blog Elevated this weekend.
Thanks for the +1 on Wave Accounting. I haven’t used it, but judging by what people have said in this post it sounds like something that is a solid recommendation.
Oh! So you don’t scan your paper receipts, you just keep them in physical file folders? I’m staring down a pile of 75 receipts that I intended on scanning, but if I don’t have to… For anyone interested, though, I use an app called Piikki that backs up to an Evernote notebook.
We have “receipt scanning” on our list of jobs for our (hopefully soon to be hired) assistant, but that has yet to happen. Hopefully soon. 🙂
For the time being we’re just storying a physical copy.
Well, I still haven’t scanned those receipts so your #oldschool technique is mighty appealing right now. It really doesn’t take that long. I just hate doing it! I think there are some services out there that allow you to mail in your receipts for scanning each month, but I haven’t tried them.
Interesting! I’d love to hear how you like it if you decide to give it a try. Sounds pretty sweet!
This post was fantastic. Accounting gives me crazy anxiety even with a having a CPA! I just wanted to mention that I started scanning my receipts this year and send them to evernote from the scanner and then save them into monthly folders. I use the ProScanner app on my phone. I hiiiighly recommend a phone scanner (way faster than the scanner attached to your computer). The quality is pretty impressive and will take you less time than mailing them to someone else to scan. 🙂 I hated the mess of the piles/folders of receipts and am SO glad to have it all digital now. Plus, I don’t really understand keeping receipts, since they usually fade in just a year or so to where you can barely read them!
Thanks Ashley! Yeah… I’ve been contemplating the scanning route. The reward of less stuff comes with a little bit of work, but I’m guessing it wouldn’t be too bad if we have a routine with it.
I don’t have a routine with it at all. Sometimes I go 3 months without scanning but it still only takes about 10 minutes to scan them all in! 🙂
I use Wave Accounting which you link to your bank account, and you can go through and mark expenses as business-related. It also shows you your income by month, and it’s great to see the income rising! Oh and.. it’s free. I love it!
Nice! Sounds very zen. 🙂
I’ve heard from a few people that use Wave Accounting and love it.
Hey Cheryl, Wave sounds pretty nice. Have you gone through a reconciliation at the end of the year? I’ve heard people like Freshbook but they don’t offer reconciliation. I’m trying to avoid Quickbooks.
I haven’t yet, no. Freshbooks sounds really interesting but it’s what, $20 a month? Hrm. Honestly we did my accounting off of Paypal last year, so I think Wave will be a step up from that at the very least!
Indeed you are moving on up! Thanks for mentioning Wave. It’s something I’m going to have to look into.
I was going to get Quckbooks Online but someone suggested wave accounting since it was free. I like it so far!
Any bloggers in this thread want a bookkeeper? I love doing bookkeeping things!
Thanks for all of this info! I’m definitely going to start checking out separately for blog-related groceries and keep better track of receipts. I think I’ll look into an LLC if I start making enough to justify the expense. (It’s $800/yr in California AFTER the initial reporting fee!)
I’m bookmarking this for the (near) future. 🙂 Thank you.
Great post! I wish it wasn’t so expensive to set up a LLC in MA…$500 a year!! Curious – what made you decide to go with a LLC over an S-Corp?
We actually just switched over this year (2015). FBP and POY are still LLCs, but we’re taxed as an S-Corp now. It didn’t make sense for us to switch over until we hit a certain revenue amount (because of the cost of the accounting involved with the payroll stuff).
Nice post. Look at statutory registrations, it have various consulting activities like income tax registrations, professional tax, provident fund, establishment license for approve complex appraisal efficiently.
Great info, Bjork, thanks! Just curious, do you itemize each *individual* ingredient in QuickBooks or simply create a *general* line item called “One-pot creamy spinach lentils” (for example) with the *total* cost of all the individual ingredients combined?
Just blog food as a general line item. 🙂
Your system zen accounting is good and shared a good tips about tax. Thanks
How do you account for the food costs when it is something being used for both blog and personal? For example, pantry staples like flour, sugar, grains, spices, etc (where you are not using full amount in package for a recipe).
In any business accounting is really important to have an organize financial system. Thanks for sharing.
So true! We’re glad you enjoyed the article. 🙂