Deciding to officially register your start-up as a legal entity is a step toward commitment in itself. Making sure to stay on top of the obligations that come with it is another. You and your team will need to define the company’s financial plan and how the tasks will be delegated. Check out these steps to set up your companies accounting department for success.
Open a Business Banking Account
Presuming that you have already registered your company as an LLC, partnership or corporation and have an EIN number, you are legally required to open a separate bank account for your business. Shop around to find the best bank for your business, open both a checking a savings account and apply for a business credit card to start building your company credit. The importance of keeping your business expenses separate from your personal could save you lots of headaches from the IRS in the future.
You will want to track your spending as accurately as possible. A solid track record is the foundation for success. from the beginning you should establish an organized way of organizing receipts and important records. We recommend using Shoeboxed as an alternative to old-fashion plastic organizers. Keeping all receipts regardless of amount is recommend and the effects could compound to be well worth it. Legally, the United States does not require receipts for expenses under $75.00
Criteria for business receipts:
– Meals and Entertainment: Different types of outings, including meals can be constituted as business meetings and in effect provide your business with a hefty margin return. Always document the number of people that were in attendance.
– Travel: Keep track of all receipts while traveling, this is the surest way to provide sufficient evidence to the IRS. Your paper trail of receipts will indeed back up your vacation as business travel.
– Vehicle related expenses: You can apply the expense of your vehicle including milage, gas and wear and tear. Just remember to document the where, when and why you used vehicle for and how it relates to your business.
– Home office receipts: Calculate what percent of your home is allocated to your business. Apply that percent to your home related expenses.
– Receipts for gifts: Client gifts are all suitable as tax write offs. just remember to document for whom and what the purchase was for.
Set up a Chart of Accounts (COA)
A chart of accounts are subdivisions that the bookkeeping company will split your expenses, income, and liabilities into. If you sell a product you will have an inventory account that might account for all of the incoming and outgoing expenses pertained to your inventory. Likewise, if you sell a service you will have no use for an inventory account.
The typical chart of accounts includes the owners assets, liabilities, owner’s equity, revenue and expenses. As your business grows you will need to add accounts. Look towards the future in the hopes that your business will expand. feel free to adjust as you feel fit, adding and deleting accounts to meet your businesses financial plan.
Separate Personal and Business Expenses
To ensure the process of recording business transactions and keeping up with a building financial statement it is probably best to develop a bookkeeping system in order to keep your personal and businesses expenses separate.
Many people opt to hire a part-time bookkeeper or try to stay abreast of the spreadsheet themselves. The standard software for bookkeeping is typically Excel spreadsheets, Quickbooks or Wave. I recommend outsourcing this piece of your business to ensure your focus doesn’t stray. Trying to tackle bookkeeping and be the driving force of your start-up ship can be a bit exhausting.
For the tech savy entrepreneurs of the 21st century I would recommend a company like Bench Accounting. Their affordable pricing makes them an ideal accounting firm for a start-up.
Keep all of your receipts & invoices
Keeping receipts and invoices for an average of 3 years if not more is not only important for the sake of your business and tax purposes. It is also how far back the IRS can issue audits.
Stay on top of tax obligations
For this step it is extremely important that you hire someone who can remind you of when you need to pay your business taxes. The first year your business is registered with the United States you could reap the reward of only having to pay a yearly tax. For the ensuing years you will be obligated to pay quarterly taxes, and this can be hard to keep track of. Hiring a tax professional is your best bet.
Depending on what state your business is registered will also present different tax fees and registered agent fees. I recommend staying on top of these payments to ensure success in the tax department.
Create a payments system
In other words you will want to create a payroll system. Establish a way that you can pay yourself and pay the people you either employ or for your future employees. The set-up shouldn’t take more than 20 – 30 minutes and the administration side takes several days to complete. The payroll system you choose should be easy to use and you should be able to process on any computer or mobile device.
The cost for payroll should be affordable. Hidden prices are a common practice of old school payroll systems, so do your due diligence and find a company that is transparent.
A few solid companies that I have had the pleasure of working with are Gusto, which offers a payroll plan of $51.00 per month for two people and Paychex. Extremely affordable if you’ve started a business out of your home. Both of which are transparent and offer discounted and competitive prices.
Whether you intend to grow your business immediately or in the future, establishing yourself as an accountable and organized company from the beginning can set you up for seamless success. Making sure your ready to receive investments and pay out employees, all while staying organized for next years tax season can mean the difference between seeing your vision through and filing papers to dissolve.
What are some accounting tips you rely on?