If you have a new startup business, then you may think there is no real need to worry about accounting. You may think that the amount you are likely to get in revenue may only just about balance your expenses, to begin with at least. Running a successful business is more than that, however. If you want to be on the road to success, then you do have to think about your accounting needs from the outset.
Here are nine accounting tips to help you keep an eye on your new business.
There are many types of businesses, and if you have set up an LLC, corporation, or partnership, you will find that a separate bank account is a legal requirement. If you classify your business as a sole proprietor then you can use your personal bank account for your business if you choose to do so, even though it is not necessarily recommended. The first account you should open is a checking account, followed by a savings account. With these two accounts you can set money aside for any compulsory payments you need to make. You shouldn’t just choose any bank, as fees for business bank accounts vary and the charges tend to be more than personal accounts.
No successful business ignores its expenses, particularly when tax rebates are a possible outcome. The types of activities that are related to a business but are considered to be expenses include when there is a need for a business meeting to take place in a neutral space, like a restaurant where a bill is likely to be the result. You should ensure you get a proper receipt for this event as it can be counted as a business expense as far as the IRS is concerned.
Expenses can be counted if you ever use your personal vehicle to undertake any of your business’s activities. You should not guess the expenses, though, but calculate the percentage of time you have used your vehicle for such activities. Using your own home for business related activities can be included in your business expenses, including using your home phone and Internet connection. This should be based on a percentage calculation of time using your home for such purposes.
You may think that the term ‘bookkeeping’ is outdated and calculating all revenue and expenses is done by an accountant. In fact, this is not the case as bookkeeping is not the same as accounting. It deals with the more down-to-earth, everyday part of a business, such as making a record of all transactions, ensuring they are categorized in an easy-to-identify manner, and going over and reconciling your business’s bank statements. Accounting is a bit more detail-oriented and focuses on how your business is progressing by looking at data about the business that the bookkeeper has put together.
You can use online tools to help you with your record keeping and determining the financial position of your business. However, it can be quite arduous and you must turn out accurate bookkeeping as required by state law. If you doubt your ability to do your own bookkeeping, and online bookkeeping tools do not suit you, there are bookkeeping businesses available that typically take the burden away. One of these is Bench, which has professionally-vetted bookkeepers available to record the financial activities of your startup. There are certain services that bookkeepers like Bench provide, such as monthly financial statements that are always accurate and which can take the weight off your shoulders at the end of the year.
Long gone are the days when face-to-face encounters are necessary to get bookkeeping jobs done. There are many highly-professional bookkeeping businesses that have taken the opportunity to close the gap between themselves and their clients by ensuring that they are available to answer emails and phone calls without any delays. Confidentiality is important too, and bookkeeping businesses like Bench keep all their clients’ business information in a secure place.
Your bookkeeper does all the transaction entries. For every transaction there is always a source document and the information on it is entered into journals. From this information the bookkeeper can determine what effect each transaction is having on a business. With every transaction’s source document the bookkeeper will make the first entry into the journal, which will cover all the information about the transaction. This is followed by an entry into the business’s accounts. There are usually several accounts affected by a single transaction, and the information is recorded in each of the accounts. The accounts must always be kept up to date so that the material can be used in any financial reports or for tax returns.
A trial balance that has been adjusted is also compiled. This is a list of all your business’s accounts and is the last event in the bookkeeping process. Once this has been finalized, the new accounting year begins. Web-based bookkeeping businesses that hire human bookkeepers, like Bench, can support you and your business throughout the year and keep all your financial records in top-notch condition. Sticking to federal and state tax requirements and deadlines is what is appealing about hiring a bookmaker who works outside your business. Web-based bookkeepers ensure that you do not lose your credibility by not paying the required amount of tax.
The sort of software used by web-based bookkeepers like Bench is based on good communication, and that means 24-hour access is available to ensure messaging can take place effectively. If you are busy scrutinizing your financial situation at night, you can still talk to your online bookkeeper and get your questions answered. The web-based bookkeeping account set up for you can enable secure multiple logins, which avoids any of the key figures in your business missing out on vital information about your business’s expenses and revenue. The people who may want access at any time include any partners in your business or your accountant.
Many businesses do not necessarily want to outsource bookkeeping to specialist providers in other countries, but there are web-based providers in the U.S. like Bench.
There are two accounting methods. The first is the cash method, where revenue and expenses are noted at the time receipts and payments are made. The second method is the accrual method, where revenue and expenses are noted at the time the transaction takes place, whether the cash has gone out of or been put into the bank, or not. This requires tracking both payables and receivables. U.S. businesses are allowed to use either method if their revenue is below $5 million.
Your employees will want to be paid regularly and you will have to deduct the correct amount of payroll tax. If you contract any of your work out, the independent contractor will need to be named, and as a U.S. business you may have to complete and file a 1099 when the year comes to an end for each contractor.
There is nothing worse than falling foul of the IRS; they do not treat tax evaders lightly. You could incur penalties if you bring in products from overseas and do not pay the right import taxes. You should check where your business stands in relation to importing goods if this is part of your business’s practice.
Depending where you are operating your startup, sales tax normally needs to be paid. If customers walk into your store, then any sales tax will be included in your selling price and the percentage will depend on which state you are operating your business in. If you get orders for your goods from international customers, then in most states you will not add sales tax for these orders.
Your tax obligations will depend on your business structure. If you are self-employed, a sole proprietor, an LLC, or a partnership, then you will claim your business income with your personal tax return. However, if your business is a corporation, then it is treated as a separate tax entity and any income you get will be taxed as if you were an employee.
The question of payment methods only really arises if you are dealing with online orders. You have to provide an easy method so that customers can pay for your goods. A good company to use is Shopify. Once you have set up an account, it will accept on your behalf American Express, Visa, and MasterCard transactions. Otherwise you will have to set up a merchant bank account which will allow your business to accept credit card payments for products.
Improving your business’s gross margin is the best way toward increasing your income overall. When calculating your gross margin, you will have to know how much it costs to produce your products. In the end, the success and viability of your business is determined by what your business actually takes home after all costs have been taken into consideration.