You’ve made the decision to start your own business – congratulations! We know it will be an exciting and fulfilling time for you, as it very well should be. It will also come with some challenges and a lot of hard work. However, there are some very practical things you can do right off the bat to ensure a good foundation for your new enterprise. One of the least “glamorous” but most important things is to set up your bookkeeping correctly from the get-go.
Determine the Structure of Your Business
Depending on whether you plan to “start big” or gradually grow your business over time, you’ll need to choose a business structure. For most start-ups, this means setting up either a sole proprietorship, partnership or limited liability corporation (LLC). The choice has implications for everything from taxes to deductions, reporting, fees and bank accounts. Regardless of which option you choose, a separate bank account is crucial. Sole proprietors are not legally required to keep business expenses and payments separate from personal ones, but it’s always a good idea.
Choose a Bookkeeping Structure and Method
Bookkeeping is different from the broader “accounting” category in that it doesn’t necessarily look at the bigger picture. It instead involves the daily business of noting transactions, sales and outgoing payments, placing them in the correct categories, and reconciling the amounts with bank statements on a regular basis. Hire a bookkeeper to do this for you, or use a software program such as QuickBooks. Choose between a cash or accrual accounting method, and be aware that a reputable accountant or software package generally does the computations for you. If you plan
to have employees, implement a payroll system as well.
Keep a Record of All Expenses
Though it’s tempting to throw receipts in a drawer and think that you’ll remember all your expenses at the end of the month or year, don’t fall into this trap! Keep track of all business-related expenses as they occur, and record them right away. When it comes time to file tax returns, you’ll be surprised at how much you can write off as a business owner. Be aware of deductible expenses such as business use of your home, travel and automobile expenses, utilities, phone bills, internet fees, depreciation of business equipment, and meals and entertainment. If you pay independent contractors, record the amounts, and issue a 1099 format the end of the year if required.
In addition to business and income taxes, be aware of other taxes specifically related to your type of business. For example, you may be responsible for import taxes on goods purchased from other countries. Sales taxes can be complicated as well, particularly if you conduct business online. Be aware of changing laws, and have a system in place for collecting and paying sales taxes.
These are just a few things to be aware of when establishing the structure of your start-up business. It’s always wise to consult a professional accountant and bookkeeper in your area, as they have years of experience and knowledge to impart – which can save you valuable time and money in the long run.