Setting up QuickBooks properly the first time will set you up for long term financial success. Categorizing your accounts correctly and organizing your transactions properly from the get-go will save you a headache later on. It means you’ll be able to focus your energy on maintaining healthy finances without worrying about costly bookkeeping mistakes.
Pre-Setup Tasks
Before you get started with QuickBooks, you need to have a few things in order:
- Safe and secure bank accounts (you’ll be linking QuickBooks to these accounts)
- An organized chart of accounts (these should be intuitive to you and your business so you can categorize your transactions properly)
- A list of regular bookkeeping tasks to keep yourself on track (in general, this means tasks like checking invoices, tallying expenses, and reconciling accounts). Pro tip: Set up recurring calendar blocks every week, month, and quarter. This will help ensure you don’t fall behind on recurring bookkeeping tasks.
If you have these three things, you’re ready to move on to actually setting up QuickBooks Online.
Set Up QuickBooks Online
When you first create an account, you’ll need to add important information about your business. To fill out company information, go to the account & settings section and enter any necessary details. At this point, you’ll choose which tax form you plan to file for at the end of the fiscal year. While you don’t have to let QuickBooks file your taxes for you, it can be a suitable solution for new business owners with simple bookkeeping.
Under the “Advanced Settings” section, you’ll also need to input key information about your accounting method (cash or accrual), when you want to close your books, and what currency you are using. Tips: Head to the bottom of the blog to see if your business should be set up as a cash accounting method or accrual.
To set up a chart of accounts, go to settings and click “Chart of Accounts,” then create a new account. You’ll be asked to choose a type of account (current assets, current liabilities, long-term assets, long-term liabilities, etc) and detail type (inventory, prepaid expenses, machinery and equipment, etc). Then name your account and add a description. Try to be as specific as possible! Common chart of account additions business owners may need to make are…
- Cost of goods sold for job materials and contractors
- Dues and subscription for all the software subscriptions your business has
- Payroll expenses (including service and admin fees for payroll)
- Types of income (ex: bookkeeping vs. coaching income)
- Interest paid and interest earned
- Assets (ex: computers, equipment, etc.)
Next, you’ll need to link your bank accounts to QuickBooks. Go to the banking section, add a new account, and type in your bank. On the next page, log in to your bank account with your username and password. Your bank will probably have you go through a series of security checks to make sure everything is secure. Finally, select the accounts you want to connect to (the ones you just set up when creating your chart of accounts).
At this point, you have the basics set up in QuickBooks Online. From here, you’ll be able to start creating, managing, and tracking your books.
Mistakes to Avoid
One common mistake is selecting the wrong accounting method. There are two main accounting methods: Cash and accrual. Under a cash-based system, you’ll record transactions based on when the money flows in and out of your account. On an accrual basis, you’ll record income and expenses based on when goods and services are delivered–even if you don’t have cash in hand.
Most likely, you’re already using one of these systems for your accounting. You’ll just need to make sure that the right method is selected in QuickBooks.
Another common mistake is miscategorizing your transactions. If you have similar accounts, it can be hard to know how to distinguish each payment or expense category. Miscategorizing your accounts can mess up your financial reports–for example, some accounts that should be on your balance sheet might end up on your profit and loss statement instead.
To prevent this, make sure you make your accounts descriptive so you know where the money should be going. When entering a new transaction, check to see if it fits in an existing category before creating a separate account for it.
What Most People Miss
Here’s a bonus tip you should know about: Your bank account and your QuickBooks bank register amount should match after you have categorized all of your transactions.
If they don’t match, be sure to check your QuickBooks bank register for duplicates. The only time they won’t match is when you have checks to vendors/customers that have not been cashed. Basically, this means you have paid payroll, but it hasn’t hit the bank yet. You can also double check this when you reconcile with your bank statements at the end of each statement period.
This guide to setting up QuickBooks Online should be enough to cover the basics. However, keep in mind that every business is different, and some have more complicated finances to deal with. You may need a different setup structure designed specifically for your business needs.
Learn more about our QuickBooks setup package to ensure your business has healthy financials to succeed long-term.
