You bought QuickBooks Online.
You connected your bank account.
Maybe you even uploaded your logo, created your first invoice, and looked around the dashboard.
Now what?
This is a question I hear from small business owners more often than you might think.
QuickBooks is one of the most useful accounting tools available to small businesses, but purchasing QuickBooks doesn’t automatically create a bookkeeping system. The software gives you the tools. You still need to decide how those tools will be used.
And that’s where many business owners get stuck.
You may open QuickBooks and see bank transactions coming in, categories being suggested, reports available, invoices ready to create, and dozens of settings you aren’t quite sure what to do with.
It can feel like QuickBooks should somehow know what to do next.
It doesn’t.
As a bookkeeper, here’s how I would approach QuickBooks if you are setting it up for your small business.
Step 1: Start With Your Business Information
Before worrying about individual transactions, take a few minutes to make sure the foundation is correct.
Your QuickBooks company should reflect the actual business you are operating.
Review basic information such as your business name, business type, accounting method, tax information, and fiscal year.
Your business structure matters too.
Are you a sole proprietor?
An LLC?
A partnership?
An S corporation?
A C corporation?
The answer can affect how certain transactions are recorded, especially transactions involving owners.
This is why I don’t recommend simply choosing settings because they sound right.
QuickBooks is accounting software, and the information you put into it eventually becomes part of your financial records.
Starting with the right setup can save you from having to clean up problems later.
Step 2: Set Up Your Chart of Accounts
One of the most important parts of your QuickBooks setup is the Chart of Accounts.
Think of the Chart of Accounts as the filing system for your business finances.
Every transaction needs a home.
Your income needs a home.
Your advertising expenses need a home.
Your insurance needs a home.
Your bank accounts, credit cards, loans, equipment, owner contributions, and other financial activity all need appropriate places within your books.
QuickBooks will usually provide a starting Chart of Accounts, but that doesn’t mean you should automatically use everything it creates.
Your Chart of Accounts should make sense for your business.
A contractor may need different accounts than a law firm.
A consulting business may need different accounts than a retail company.
A business with inventory may need a different structure than a service business.
At the same time, more categories aren’t necessarily better.
I sometimes see business owners create a new account every time they encounter a slightly different expense.
Before long, they have an enormous Profit & Loss statement with categories they barely use.
Your Chart of Accounts should give you useful information without becoming unnecessarily complicated.
Step 3: Connect Your Business Bank and Credit Card Accounts
One of the best features of QuickBooks Online is the ability to connect financial accounts.
Once connected, transactions can flow into the bank feed for review.
This can save a tremendous amount of time.
But there is an important distinction:
The bank feed is essentially bringing information into QuickBooks and asking, “What should we do with this?”
You still need to review the transactions.
That might mean categorizing a purchase, matching a payment to an existing invoice, recording a transfer, matching a bill payment, or handling another type of transaction.
If you have multiple business bank accounts or credit cards, make sure you understand which accounts need to be included.
You want QuickBooks to reflect the complete financial activity of the business.
Step 4: Learn the Difference Between Add, Match, and Transfer
This is one of the first QuickBooks concepts I would want a new business owner to understand.
Not every transaction appearing in your bank feed should simply be added as a new expense or deposit.
Sometimes QuickBooks is showing you a transaction that already exists in your books.
For example, suppose you created an invoice for a customer and later recorded the customer’s payment.
When that deposit appears in your bank feed, you don’t necessarily want to create another income transaction.
You may need to match the bank activity to the transaction already recorded.
The same idea applies to transfers.
If you move $5,000 from business checking to business savings, your business didn’t suddenly earn another $5,000.
You moved your own money between accounts.
Understanding whether you should add, match, or transfer a transaction is one of those seemingly small QuickBooks skills that can make a big difference in the accuracy of your books.
Step 5: Decide How You Will Handle Income
How does your business get paid?
Do you send invoices?
Do customers pay immediately?
Do you receive payments through a payment processor?
Do you receive ACH payments?
Checks?
Credit cards?
Cash?
Before recording income, understand the path the money takes from your customer to your bank account.
If you invoice customers, you’ll want to understand the relationship between invoices, Accounts Receivable, customer payments, and bank deposits.
This matters because recording the same revenue in multiple places can cause income to be overstated.
For example, if an invoice already records the sale and you later categorize the customer’s bank deposit as new sales income instead of matching it appropriately, you may end up counting the same revenue twice.
That’s not a QuickBooks problem.
That’s a bookkeeping workflow problem.
And it’s much easier to establish the correct workflow now than to discover months later that your revenue has been duplicated.
Step 6: Decide How You Will Handle Expenses
Expenses may seem simpler.
Money leaves the bank account, you choose an expense category, and you’re done.
Sometimes it really is that simple.
But not always.
A payment leaving your account could be an ordinary business expense.
It could also be:
- A credit card payment.
- A loan payment.
- A transfer.
- An owner distribution.
- An asset purchase.
- A reimbursement.
- A payment toward a bill that has already been entered into QuickBooks.
This is why I encourage business owners to think about what actually happened rather than simply asking, “Which expense category should I choose?”
The right question is:
Once you understand that, you can determine how it should be recorded.
Step 7: Be Careful With Personal and Business Transactions
Ideally, business and personal finances should be kept separate.
A dedicated business checking account and business credit card can make bookkeeping much easier.
But real life isn’t always perfect.
Sometimes a business owner accidentally uses the business card for a personal purchase.
Sometimes the owner pays a business expense personally.
Don’t simply delete or ignore those transactions because they don’t look like normal business expenses.
They still need to be handled appropriately in the bookkeeping.
How they should be recorded can depend on your business structure and circumstances.
If you’re unsure, this is a good question to bring to your bookkeeper or tax professional rather than guessing.
Step 8: Don’t Let Bank Rules Run the Business
Bank rules can be fantastic.
If the same predictable transaction occurs every month, a properly created rule can save time.
But I wouldn’t recommend creating dozens of automatic rules before you understand your bookkeeping.
Why?
Because automation doesn’t know when something unusual happens.
Suppose you normally spend $100 or $200 at a particular retailer on office supplies.
You create a rule telling QuickBooks to categorize every purchase from that retailer as Office Supplies.
Then one day you buy a $3,000 computer from the same retailer.
The rule may continue doing exactly what you told it to do.
That’s the danger of automation.
Automation can make good bookkeeping faster.
It can also make incorrect bookkeeping faster.
Use rules strategically, and review them periodically.
Step 9: Learn Your Profit & Loss Statement
If you’re going to use QuickBooks, don’t just use it as a place to store transactions.
Use the reports.
Your Profit & Loss statement is one of the first reports I would encourage a business owner to become comfortable reading.
It generally shows your income and expenses over a specific period and helps you see whether the business generated a profit or loss.
Look at it monthly.
Compare periods.
Pay attention to changes.
Is revenue growing?
Did advertising expenses suddenly increase?
Are software subscriptions getting out of control?
Is one expense category much higher than expected?
Are there transactions sitting in categories that don’t make sense?
You don’t need to become an accountant to review your Profit & Loss.
You do need to understand enough to recognize when something looks wrong.
Step 10: Don’t Ignore the Balance Sheet
The Profit & Loss gets most of the attention because business owners naturally want to know how much money they made.
But the Balance Sheet matters too.
Your Balance Sheet can show things such as bank balances, credit card balances, loans, Accounts Receivable, Accounts Payable, assets, liabilities, and equity.
If your Profit & Loss looks reasonable but your Balance Sheet contains strange negative balances, old amounts that never change, or bank balances that don’t match reality, your bookkeeping may need attention.
This is why good bookkeeping is more than correctly categorizing expenses.
The different pieces of QuickBooks need to work together.
Step 11: Reconcile Your Accounts Every Month
If there is one habit I would want every business owner using QuickBooks to develop, it is monthly reconciliation.
Your bank statement represents what actually cleared your bank.
QuickBooks represents what you’ve recorded.
Reconciliation compares the two.
Let’s say your bank statement shows an ending balance of $24,512.84.
QuickBooks shows $26,910.16.
Why are they different?
Maybe something is missing.
Maybe something was duplicated.
Maybe a transaction was deleted.
Maybe a transfer was recorded incorrectly.
Maybe a check hasn’t cleared yet.
Reconciliation helps you find those differences.
This is why I don’t consider bookkeeping complete simply because the bank feed has been cleared.
You can have zero transactions waiting for review and still have incorrect books.
Reconciliation helps verify that the records actually make sense.
Step 12: Create a Monthly Bookkeeping Routine
The easiest bookkeeping problem to fix is the one you don’t allow to become a huge problem.
Don’t buy QuickBooks, set it up, and then ignore it until tax season.
Create a monthly routine.
Depending on your business, that may include reviewing and categorizing transactions, matching deposits and payments, reviewing Accounts Receivable and Accounts Payable, reconciling bank and credit card accounts, reviewing payroll activity, checking loan balances, and reviewing financial statements.
The exact process will vary from business to business.
The important part is consistency.
Twenty transactions are much easier to research than 400 transactions from nine months ago.
And you’ll have a much better chance of remembering what a mysterious $287 purchase was when it happened three weeks ago rather than eleven months ago.
Step 13: Know When You Need Help
You absolutely can learn to use QuickBooks yourself.
Many business owners do.
But there’s a difference between being able to operate the software and understanding bookkeeping.
QuickBooks can show you where to click.
It can’t always tell you why you’re clicking it.
That’s where bookkeeping knowledge matters.
If you enjoy managing your books and have time to learn the process, great. Learn the basics, create a consistent routine, and ask questions when you’re unsure.
But if you find yourself spending Saturday afternoon searching things like:
- “Is a credit card payment an expense?”
- “Why doesn’t my QuickBooks balance match my bank?”
- “Why is my income showing twice?”
- “Where do I categorize owner payments?”
- “Why is my loan balance wrong?”
Then it may be worth asking whether your time is better spent somewhere else in your business.
QuickBooks Is a Tool. Your Bookkeeping Is the System.
Buying QuickBooks is a great first step.
But it’s just that.
A first step.
QuickBooks can organize financial information, automate repetitive tasks, create invoices, connect to your bank, generate reports, and give you visibility into your business.
But the quality of the information coming out of QuickBooks depends on the quality of the bookkeeping going into it.
You need the right accounts.
You need the right workflows.
Transactions need to be recorded correctly.
Accounts need to be reconciled.
Reports need to be reviewed.
And all of this needs to happen consistently.
Because ultimately, the goal isn’t to become really good at clicking buttons in QuickBooks.
The goal is to have financial information you can use to run your business.
Bought QuickBooks and Not Sure What to Do Next?
If you purchased QuickBooks Online and now you’re wondering how to actually set it up and use it correctly, you don’t have to figure everything out through trial and error.
At CityScape Bookkeeping, I help small business owners with QuickBooks Online setup and bookkeeping support, cleanup and catch up bookkeeping, and ongoing monthly bookkeeping.
Whether you’re starting with a brand new QuickBooks account or you’ve already been using it for a while and aren’t sure whether everything is set up correctly, I can help you understand what your books need and how to move forward.
Because buying QuickBooks isn’t the goal.
Having bookkeeping you understand and numbers you can trust is.