Accounting for yoga studios in 2023: (basics, setup, software)

Modern accounting through double-entry bookkeeping was first described in 1494. While traces of accounting can be found way before that, it was nothing similar to what we see and practice today. 

By definition, accounting is the practice of recording, summarizing, analyzing, and reporting an organization’s financial transactions. Although the primary objective of accounting is tracking finances, it majorly impacts the actions of stakeholders, management, regulators, and tax authorities. 

Several bookkeeping methods and tools are used to gather, analyze and present accounting data in a consistent and standardized manner. In this article, we’ll understand why accounting is important, how to do it effectively, and a few mistakes you should avoid as yoga teachers. A comprehensive review of some accounting software is also provided. 

Why is accounting important for yoga studios? 

Effectively running yoga studios requires precise estimation, planning, and execution of business decisions. While many other additional factors contribute to the overall process, finances are the most fundamental. Here are the reasons why accounting is important for yoga teachers.  

Financial tracking

Bookkeeping and accounting empower yoga studios with detailed information on inbound and outbound financial transactions.

Financial statements make recording, classifying, and summarizing financial transactions easier and help stakeholders, management, investors, and creditors make informed decisions. 

Compliance with financial regulations

Tax laws, financial regulations, and reporting standards are maintained through accounting and bookkeeping. Aside from keeping you updated on the latest tax benefits, complying with these regulations protects yoga studios from unnecessary tax fines, legal action, or damage to their reputation. 

Decision-making

Governed by a few standards of practice, accounting influences organizational and external decision-making to a great extent. Through your financial health, creditworthiness, and managerial accounting, your investors, creditors, and financial managers can effectively make the right decisions. 

For example, balance sheets, income statements, and cash flow statements are scrutinized and analyzed by investors and stakeholders to determine the valuation of the yoga studio and its worthiness to secure an investment. 

On the other hand, lenders derive the D/E ratio (debt-to-equity), times interest earned ratio, and a few other financial ratios solely from accounting statements. These metrics are used to determine the risk of lending a certain amount to your yoga studio. 

Budgeting and planning

In addition to meeting regulations, accounting helps you stay transparent about your financial activities and optimize day-to-day operations. By determining growth opportunities and optimally allocating scarce resources, you can create budgets, track efficiency, understand public perception, and develop long-term strategies for your yoga business in the fitness industry. 

A simple example of this may include the introduction of new yoga classes and yoga teachers. Reviewing your accounts for the previous year will give you a good idea about your monthly income and expenses. By forecasting the financial changes influenced by introducing new classes and yoga teachers, you can determine the viability and budget of your plans. 

Accounting vs bookkeeping for yoga studio owners

There are a few distinct differences between accounting and bookkeeping. While both are essential financial elements for your yoga studio, they rely on each other to a great extent. 

Bookkeeping is the process of recording and managing expenses, income, tax returns, loans, interests, payrolls, and every other financial transaction in the original account books. The books are necessary for regular financial reporting and analysis. Basic bookkeeping skills are required to handle the process. Moreover, accounting software can simplify and manage bookkeeping tasks through automation. 

On the other hand, accounting demands the skills to manage accounting practices and policies. In accounting, the books are carefully analyzed and interpreted to offer insight and prepare income statements and balance sheets for your yoga studio. In essence, accounting services start where bookkeeping ends. However, some modern software can even generate financial reports and analytics.

How to do accounting for your yoga studio

As a yoga business owner, you’ll need to maintain several books, including rent, overhead, income, cash flow, and taxes. Depending on the volume of your operations, you may need to hire accountants or invest in software. Here is a basic set of guidelines that can help with basic accounting services for your yoga studio.  

Prepare a chart of accounts

A chart of accounts is a categorization practice followed by accountants to easily track assets, liabilities, equity, revenue, expenses, and income. A basic chart of accounts for your yoga studio should include: 

• Asset accounts (1000 -1900)
• Liability accounts (2000 - 2900)
• Equity accounts (3000 - 3900)
• Revenue accounts (4000 - 4900)
• Expense accounts (5000 - 5900)

The numbers that you can see here are the denotations commonly used by accountants and software. As these accounts may include thousands of entries, assigning a numbering system helps identify the entries easily with the first digits from the studio’s ledger (1,2,3,4,5…).

Be very cautious when creating or deleting new chart accounts. Discourage the creation of new duplicate accounts and the deletion of inactive accounts to avoid confusion. Moreover, space out the numbers (1010, 1020, 1030...) to make room for any new accounts between them. 

Record every financial transaction

Effective accounting involves tracking and recording every financial transaction that takes place in your yoga studio. Every detail, no matter how minute they are, should be recorded for accounting purposes. For example, a yoga mat that has been lost and replaced should be recorded in the inventory and expense account. 

Monthly expenses like rent, salaries, and utilities should be updated every month to avoid confusion and unintentional tax irregularities. For easier accounting, consider avoiding cash altogether to transact. Take payments online, make payments online, and buy online. 

Reconcile bank accounts

Reconciliation of bank accounts refers to the process of comparing your yoga studio accounts with your bank statements. This ensures that every transaction is accounted for and prevents discrepancies in the future. While large companies may reconcile their accounts every day or week, you should be fine with a monthly analysis. 

The first step is to allow your software or accountant to access your bank statements. You also need to have the company ledgers that we mentioned earlier. Usually, manual ledgers are maintained in spreadsheets or logbooks.

More often than not, your bank statements won’t reflect the exact transactions. This may be due to outstanding payments, floating deposits, and clerical errors. Regardless of the reason, make sure to take the necessary actions. Cash balance should also be compared.   

Prepare financial statements

Your accountant is responsible for creating financial statements such as: 

• Balance sheet
• Income statement
• Cash flow statement
• Statement of changes in equity
• Statement of retained earnings

As mentioned before, these statements are used by investors, lenders, and management to make informed decisions. The steps involved in the creation of these statements are: 

1. Supplier invoices. Ensure you’ve received every supplier invoice. Regardless of their payment status, list them in your accounting practice. If any invoices are due, accrue them. 
2. Client invoices. Compare your membership log with every client invoice to make sure every client invoice has been issued. Try to issue any invoice that hasn’t been prepared yet. 
3. Unpaid wages. Accrue any wages that haven’t been paid yet. 
4. Reconcile bank accounts.
5. Review accounts. Compare the accounts to correct any discrepancies. 
6. Income tax and sales tax. Accrue tax expense, depending on the income statement.  
7. Issue financial statements. Print the final version of the account statements and write footnotes for reference. 

Monitor cash flow

Cash flow is the amount of cash or cash equivalent that your yoga studio generates and spends over a period of time. Typically, the higher the number, the better the valuation of your studio. Maintaining a positive cash flow is important to sustain and thrive. 

Usually, three types of cash flow are considered for different purposes:

• Free cash flow
• Operating cash flow
• Cash flow forecast

In all three types, depreciation of assets, income, working capital, and capital expenditure (Capex) are calculated and considered.  

Common yoga studio accounting mistakes

A few mistakes that new or even established yoga studios often make in terms of accounting are: 

Mixing personal and business accounts

Mixing personal and business accounts for transactions, payments, and collecting fees often create issues with the regulations imposed by the tax authorities. Even if you’re the sole proprietor, consider keeping the tabs separate. 

Failing to track receivables and payables

Misplacement of invoices, failure to collect fees, failure to make regular financial reporting and ignorance towards account reconciliation can create issues when accruing invoices and due payments. While this may not seem to be an issue in the short term, it can create confusion while filing taxes.  

Intentional and unintentional tax fraud

Discrepancies in financial data can put you in undue circumstances of federal investigation and fines. Stay legally compliant and avoid tax fraud by never hiding your income in the statements. 

Failing to reconcile accounts

Regularly reconcile your accounts to keep financial data updated with bank statements. Failing to do so can cause discrepancies and future issues. 

Best yoga studio accounting software

We have reviewed some accounting software that we find the best for yoga businesses:

Quickbook

Designed to cater to small and medium-sized businesses, Quickbook is used for managing several accounting-based activities including invoicing, managing expenses, payrolls, and taxes.

Pros of Quickbook include: 

• Ease of use.
• Ability to generate a variety of reports for yoga studio bookkeeping services.
• Scalability for different-sized businesses.
• Cloud operation. Accessible from anywhere.

Cons include: 

• It’s a bit expensive, especially for advanced features like multiple users. 
• Customer support is average. 

Xero

Equipped with features like reconciliation, invoicing, and expense tracking, Xero is developed for medium and small businesses, including yoga studio bookkeeping services.

Pros of Xero include: 

• Cloud-accounting. Accessible from anywhere. 
• User-friendly interface. 
• Availability of mobile apps. 
• Integrates with hundreds of third-party accounting tools. 

Cons include: 

• Limited support for multiple currencies. 
• Absence of efficient inventory tracking. 

Wave

Offering a range of features including payroll, expenses, and reconciliation management, Wave is a cloud-based accounting software best fitted for yoga studio bookkeeping services. 

Pros of Wave include: 

• iOS and Android user-friendly app.
• Cloud-based accounting software. 

Cons include: 

• Not fitting for larger established yoga studios. 
• Customer support is limited for free users. 
• Basic features aren’t adequate. 

The bottom line

We’ve discussed the basics of yoga business accounting with a step-by-step guide to kickstart your accounting today. Hopefully, you will be able to avoid the mistakes mentioned in the article by using the best own business accounting software.