Ensuring you have the proper accounting and bookkeeping procedures in place is one of the most critical aspects of starting a business. Unfortunately, they are also often the most overlooked. Here are seven steps to help new business owners have a strong financial start.
1. Determine Entity Type – It is critical to select the correct entity type upfront and based on complete information. You should discuss this choice with a skilled Certified Public Accountant (CPA) before making a final decision since it has long-term tax and legal implications.
2. Open a Dedicated Business Bank Account – Your business funds should never be intermixed with other funds, especially personal funds. Setting up a separate business account is not only the smart move from a legal standpoint, it will also make life easier when handling accounting and bookkeeping for your business.
3. Set-up a Bookkeeping System or Hire a Professional – It is important to accurately track, analyze, and record daily transactions. There are multiple programs out there that will do this for you, or you may find that outsourcing your bookkeeping is the best option for your business.
4. Track Business Expenses – There are many expenses incurred when starting and running a business, so make sure you are collecting the required receipts and documentation as you go. These include business-related expenses for meals, travel (to include vehicle use), and gifts.
5. Establish a Budget and Forecast – It is essential to estimate your incoming and outgoing expenses for your business in both the short term and future. This will help you to set goals for your new venture and understand the basic financial health of the business.
6. Establish Payroll System – Even if you do not have employees, you still need to pay yourself. It is not as easy as transferring funds or writing a check. Similar to bookkeeping, there are programs you can use to handle payroll or you may want to consider outsourcing this task depending on the number of employees and complicity of the task.
7. Clearly Understand Your Tax Requirements – You need to comply with tax obligations from day one. This includes understanding sales tax requirements and your tax payment schedule. The schedule alone varies depending on your tax entity, income, and the amount you will owe in taxes.