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If you have just started your new business, there is a lot you need to do before you get it up off the ground. You need to make sure you have your accounting administration set up correctly. During the early stages of your business, accounting is essential to keep on track. You need to know how to track and manage your money effectively, which parts of your business you can automate and which professionals you should turn for advice when you need help to succeed.
Open a Business Bank Account
The moment you get your business registered is when it is time to think about where your money is going. Corporations and LLCs are required to keep their business finances separate from the personal accounts of their owners, while sole proprietors do not face such restrictions.
Keeping your personal and business finances separated in business and personal bank accounts will make tax season far less complicated. Your personal and business finances will be in separate accounts so when tax time comes around you do not have to worry about separating them and figuring them out. Also, your bookkeeper and accountant will be able to easily monitor how your business is doing by having them separate.
If it is your first time setting up a business bank account, choose a bank that meets your needs such as accessing a local branch in person and online easily, if it works with your POS system, and more.
To keep your money organized, you will need one savings, and one checking. Once you have your business off the ground you can consider applying for a business credit card. Besides helping your business have a good credit score, the right business card will help get rewards and cash back bonuses that you can use in other areas of your business.
Track Your Expenses
Many small business expenses are tax deductible but to claim your deductions, the IRS requires you keep records of everything you spend.
You should consider holding on to the following items to track your expenses:
- Bank statements
- Credit card statements
- Receipts
- Canceled checks
- Bills
- Invoices
- Poof of payments
- Previous tax returns
- W2 and 1099 forms
- Financial statements from your bookkeeper
The IRS requires that you keep receipts of anything that is $75 or more. However, get into the habit of recording everything so that you will not accidentally toss an important document.
Have a Bookkeeping System
Bookkeeping may seem like a boring task but every business owner needs to get it done on a monthly basis. There are three options to choose from to get your bookkeeping done:
- DIY: use an Excel sheet or some account software program to help you manage your books.
- Outsourcing: In order to focus on the immediate concerns of your business, you may outsource your bookkeeping tasks online.
- Hire in-house support: when your business is large enough, you can hire someone to work in-house.
Work with a CPA
Along with a bookkeeper and lawyer, the CPA are indispensable to a small business. Having a CPA can help you lease negotiations, cash and treasury management, and ongoing cash reporting.
Determine How You Will Get Paid
You will need to choose a payment system that works best for you because you probably are not only doing cash transactions for your business. The following are some options to consider for how you will get paid:
- POS system and in-person payment: if you plan on doing both, you can use a mobile system such as Square.
- POS payments: look into using a POS system for in-person payments which accepts transactions alongside a cash register or a standalone credit card reader.
- Online payments: you can use Stripe or Shopify for accepting online payments.
Set Up a Payroll System
As your business grows, you might need to hire contractors and employees. Payroll is also a necessary task that can drain your time and energy, similar to bookkeeping. Before you bring on any new team members, make sure you categorize them correctly as independent contractors or employees.
Determine Your Tax Obligations
Depending on the type of business structure you have, what the IRS will require of you will look different. For example, sole proprietors, LLC, and partnerships, you need to claim income on their personal tax returns. They must withhold taxes from their income. Corporations are separate entities, and their taxes must be filed independently from their owners’.
Stay on Top of Your Gross Margin
One of the best ways to grow the income of your business is to increase its gross margins. You need to understand how much it costs to produce your company goods or services to calculate your gross margin and by defining the Cost of Goods Sold.
- Cost of Goods Sold: the direct costs incurred by a company during production.
- Gross Margin: a percentage expressing the total revenue a company collects after factoring in the COGS.
To calculate Gross Margin, use the following formula:
Gross Margin = (Revenue – COGS)/Revenue
Your business’s ability to sustain itself depends on the different between the price of a product and the cost incurred producing it.
Keep Refining
Once your business has started to get off the ground, you will need to continually review and modify if needed on your accounting tasks. By doing this you will be able to main profitability and improve your bottom line and will ensure the long-term success of your business.
