Chapter 1 · Accounting Basics
The bookkeeping fundamentals every small business owner must master — not because the math is hard, but because doing it right protects you and keeps taxes honest.
Learning objectives
- Know why keeping business and personal money separate is non-negotiable.
- Understand what "keeping the books" actually means.
- Decide between software (QuickBooks/Wave) and hiring a bookkeeper/accountant.
Rule #1: never mix business and personal money
This was flagged in Vol 2 and it's worth repeating: one LLC, one dedicated business bank account, one business card — and nothing personal mixed in. Why:
- Legal protection: Mixing money lets a court "pierce the corporate veil" and hold you personally liable for business debts, killing your LLC's protection.
- Taxes: You can only claim business deductions if you can prove the expense was business. A blended account makes every deduction questionable.
- Sanity: You'll always know exactly how the business is doing if the money is separate.
Paying shop expenses from your personal card "just this once" — then it becomes a habit, the books blur, and either you miss deductions or (worse) you lose the liability protection you formed the LLC for. Just don't. Every business dollar goes through the business account.
What "keeping the books" means
"Books" = a record of every business income and expense, categorized, so you know your profit and can file taxes. You don't need a degree — you need a system:
- Record every transaction — every play revenue (via cashless reports + cash log), every expense (rent, prizes, insurance, machines, utilities).
- Categorize it — label each as rent, inventory/prizes, insurance, equipment (machines — which are also depreciable), utilities, marketing, etc.
- Know your profit — revenue minus expenses. On Schedule C (your personal return) this is your business net.
The simplest way to stay on track: reconcile monthly — compare your recorded numbers against your bank/card statements so nothing is missed and nothing is mislabeled.
Software vs a person: what fits you
Do-it-yourself with software
For a small single-shop business, accounting software makes DIY easy:
- QuickBooks Self-Employed — the standard; ~$15–$30/month, powerful but some learning curve.
- Wave — free (for basic accounting/invoicing), friendly to beginners, plenty for a solo cash-based shop.
- FreshBooks — simple, best if you invoice (less relevant to a claw shop that takes card payments).
Many owners manage day to day in software, then hand the year-end to an accountant to file. That's a great middle ground.
Hire a bookkeeper and/or accountant
Even a part-time or monthly bookkeeper (a few hundred $/month) removes the burden and the mistakes that cost you at tax time. And everyone should use a CPA for at least the first year (budget $300–$800/year to file your Schedule C/LLC and answer the claw-machine sales-tax question) because the tax specifics (sales tax on plays, machine depreciation, deductions) are nuanced — Vol 6 · ch 3 & 2 cover what you'll discuss with them.
Start with Wave (free) or QuickBooks, reconcile monthly yourself, and hire a CPA for the first year to set up your books right, handle the sales-tax questions, and file. Once year one teaches you the ropes, you can decide whether to keep the CPA or drop to software-only.
The paper you must keep
- Sales receipts/invoices for every expense (rent, prizes, machines, insurance).
- Cashless/card processor statements — your revenue record.
- Cash logs — daily/weekly counts (Vol 5 · ch 4).
- LLC formation + EIN paperwork.
- Bank and credit-card statements for the business account.
Keep them organized (a folder or cloud drive, plus scanned copies). You'll need them at tax time and if you're ever audited.
Summary
Accounting starts with one hard rule — keep business and personal money completely separate — then a simple system: record, categorize, and reconcile monthly. Use free software (Wave) or QuickBooks yourself, and hire a CPA for at least the first year to get it set up right. Keep every receipt and statement. None of this is hard; it's just discipline that protects your money and your legal LLC.
Checklist
- ☐ Business bank account + business card open (nothing personal mixed).
- ☐ Chose bookkeeping software (Wave/QuickBooks) and set it up.
- ☐ Set up a monthly reconciliation habit.
- ☐ Hired a CPA for year-one setup and filing.
- ☐ Set up a system to keep receipts and statements organized.
Looking ahead
With the books in order, Chapter 2 explains the taxes themselves — what you owe, when, and the deductions a claw shop can claim.