After years of dreaming, brainstorming, problem-solving, and planning, you have a solid business plan for your own venture. You have some capital to get started and you’re searching for a small business loan to help you invest in some much-needed equipment. If you haven’t already figured out how to track your expenses, produce invoices, set up payroll, manage taxes, and all of your other accounting needs, you should get started now. Here is a list of seven steps to follow when you need to establish your new business’s accounting system.
1. Hire a CPA
Your CPA is your partner in planning your financial strategy. They will help you make cost-saving decisions, negotiate leases, manage your cash and treasury and handle your tax reporting. Most CPAs will offer a free consultation, but you will then need to ask them if they charge hourly or require a retainer when hired.
2. Open Your Business Bank Accounts
Shop around for a small business-friendly bank or a business banking credit union. Some of the best financial institutions for small business owners are local banks and credit unions that offer Small Business Administration (SBA) loans and business banking products. Look for places that offer both business checking and business saving accounts.
Experts recommend not mixing your personal and business bank accounts. Keeping them separate will make things much easier during tax time. Your CPA will also thank you because they can calculate statistics from your business account using accounting software programs, and the information will be neatly organized.
3. Know Your Tax Obligations
Your tax requirements depend on the structure of your enterprise. If you are a sole proprietor, LLC or partnership, you will need to file estimated quarterly taxes. Talk to your CPA about how to calculate additional types of taxes, especially sales taxes since they vary state-to-state.
4. Record Your Expenses
You need to track your expenses so you can deduct them on your taxes, as well as see how your business is performing. Don’t forget minor purchases like meals and office supplies because they are also deductible. Save all of your documents, paper and digital, that verify what you are spending:
- Bank statements
- Credit card statements
- Receipts (cell phone, gas, internet service, etc.)
- W2s and 1099s
You may want to start with a DIY spreadsheet and get an expense tracking app for your phone or another device.
5. Establish a Bookkeeping System
Bookkeeping is not the same thing as accounting. The main difference is that bookkeeping requires ongoing financial recording tasks and clerical skills such as filing, printing, and preparing documents for other people such as invoices and payroll. Your end-of-the-year tax information is generated from your bookkeeping records. Therefore, if your bookkeeping is complete and up-to-date, you will be in good shape during tax season.
6. Set Up Payroll
Payroll is a time-consuming task. First, you need to designate your hires as either employees or independent contractors so you can generate W2s and 1099s at the end of the year. Try to automate your payroll system with software that can calculate tax withholding. You can DIY payroll or outsource if you prefer.
7. Review Your Accounting Methods and Make Changes If Needed
Periodically check your expense tracking software and apps to see if they are running smoothly. Also, talk to your bookkeeper (if you are not DIY) and CPA to see if they have feedback on how to improve your accounting methods.
You might encounter some challenges when you first set up accounting procedures for your new business. But eventually, you will find solutions that are easy to manage, cost-effective and meet IRS requirements.