This Business of Writing: Setting Up Accounts

business, writing, authore, accounting, bookkeeping, All rights reserved by iStockphoto
All rights reserved by iStockphoto

This is the second in my series of articles on the business side of being a writer.  Originally I planned to use this series as part of a book on this topic, until I discussed the book with a CPA/Registered Investment Counselor/Author.  He thought the book was a needful thing, for many authors seem under-prepared to deal with the financial side of their chosen career, but he suggested that I market the book as a sleep aid.   Bookkeeping just isn’t exciting (unless you’re writing fiction about a bookkeeper who is a sex-addicted, vampire/zombie, who goes around murdering people.   That, people might buy.)  To see if he was right I decided to try out a series of articles here on my blog and judge your reaction to them.

As I was preparing this series I was contacted by Brigitte A. Thompson, President of
Datamaster Accounting Service, LLC and author of Bookkeeping Basics for Freelance Writers.  Brigitte offered me a series of posts on accounting for authors in exchange for the opportunity to promote her book.   Since she is an accounting professional and an author, her advice would be more accurate and probably more valuable than mine.  So, starting with my regular post on Monday we’ll launch into Brigitte’s series on bookkeeping for authors.  But first, I’m going to slide (most of) the post I had written for Monday in here today because I think it has some things to say that some of you may need to hear and don’t seem to be covered in detail in the upcoming series.  Brigitte’s series starts on Monday.

Setting Up a Chart of Accounts

If you’re using bookkeeping software it will probably set up a chart of accounts for you based on the “industry” you select while installing the program.  But I’ve found this to not be the most expedient way to do this, especially if you plan to file your own taxes.  I find it much easier at tax time if I have may chart of accounts set up to reflect the IRS Schedule C form.

Bookkeepers tend to like a richness of detailed information, breaking general accounts down into specific sub-accounts.  Office Supplies might be subdivided into paper supplies, software, refreshments, cleaning goods, etc.  The IRS doesn’t care about that, as long as you can document that all were legitimate Office Supply expenditures, they just want the total for the category.  Business owners and bookkeepers may want to know the details to track spending trends: if the expense for coffee and donuts triples one month they’ll want to know why, but as a self-employed author, you probably don’t want to mess with this.  Keep it simple.

I like to take my chart of accounts directly off the Schedule C.  I even use their names for the accounts instead of the names suggested by the software.  Then when tax time comes, plugging numbers into the forms is a snap.

Business Cash Accounts

You will want to set up a checking account and possibly a savings account for your business.  Mingling business money and personal money in one general purpose account is a bad idea.  While it’s true that as a sole proprietor all income is your money, mixing personal expenditures and business expenditures in one account vastly complicates things as far as accounting goes and is a major red flag should the IRS ever have you in for coffee.

The Name Game

When you set up bank accounts for your business, you may want to set them up under a business name.  If you want a business account rather than a personal account, some banks will insist on a business name and an EIN (Employer ID Number).  Whether you use a personal account or business account will depend on the bank you choose, its fees structure and allowed uses.  Shop around, compare several banks, and choose the one that best suits your needs.

If you plan to solicit publication through legacy houses or use Indie small presses, your role in the process is strictly as Author, and using your own name in some manner makes a lot of sense in terms of publicity and the name on the check.

If you plan to self-publish, especially if you plan to self-publish paper books, you’ll want a bank account set up in the name you choose as your publishing house.  Amazon and Barnes & Noble will let you declare yourself as both author and publisher, but should you want to get your print books into bookstores you will need to deal with Lightning Source as your printer/distributor, and they are stinkers on this point.  They want to deal with the publisher of the book.  And the catalog listing for the book should list a publisher, not an individual’s name if you want any chance of being taken seriously.  At least for now; technology is emerging that will allow a reader to go into any bookstore or library, look through a catalog, and print a copy of any book they want in just moments.

Checking

Back to your accounts.  You will want a checking account for business expenditures.  If you can get a debit card that will be accepted like a credit card you can use that to make on-line purchases, but check the bank’s security and fraud policies first.  If someone swipes your account information through an on-line purchase and empties your checking account, do you have recourse while the event is being investigated?  This can take months (I know, I’ve been through it).  If your account is frozen and you are penniless until they determine whether it’s fraud or not, you’re in trouble.  If this is their policy, get a credit card instead of a debit card for on-line purchases.

Credit Card

A regular credit card allows you to use the card even when you dispute a charge, and it won’t tie up all your cash while the investigation is being run.  You will be required to make minimal payments on the account during an investigation, but you don’t have to pay the full amount unless you lose the challenge.

Under normal circumstances, plan to pay off the card balance every month to avoid getting snowballed by interest fees.  You will be using the card as a firewall between your vendors and your checking account, not as a loan service.

Savings

A savings account is a good place to squirrel away excess cash assets so they don’t get frittered away by frivolous spending or overconfidence because you see a large checking account balance.  Your funds will also draw a modest income from interest.  Very modest these days.  Other investment vehicles like CD’s are better for long term storage of your cash assets, but a savings account allows ready access to your funds without penalty when you need them.  Having on-line banking set up makes it easy to transfer funds between accounts and you can even set up automatic monthly transfers into savings if you want.

Cash on Hand

Also get a cash box (or a coffee can) where you can keep some cash for those local expenditures where cash is the best route to go.  Use this only for business expenses and reconcile the “cash box” monthly just like you do the checking account.  When you need to replenish the cash box, withdraw cash or cash a check from your business checking account.  If you take in cash sales (books sold at a book signing perhaps) deposit the excess into checking.

Next Time

On Monday I’ll turn the helm over to Brigitte A. Thompson, accounting professional and author of Bookkeeping Basics for Freelance Writers.  Please stop in and give her a warm welcome.  Until then:

\\\/// Write long and prosper.

Save

Save

6 thoughts on “This Business of Writing: Setting Up Accounts”

    1. See… what’d I tell ya? (shakes head) Guess I’ll go back to work on my Mountain Man gardening guide: The (almost) Vertical Garden.

  1. Pingback: Business Accounting : How to Set Up Chart of Accounts | Dual Entry Accounting
  2. Pingback: This Business of Writing: Setting Up Accounts Allan Douglas | Creative Freelancing | Scoop.it

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.