Starting your own business is exciting. It takes courage, determination, and planning to be successful. And a bit of understanding about business accounting.
One of the most important things to do in the early stages of your business is to establish your accounting systems and procedures. Here are some tips to help you get off on the right foot with your business finances.
Understand Your Business Is an Entity Separate from Yourself
One of the most common mistakes that I see as an accountant who helps business owners just starting out is not separating the business finances from their own personal accounts. Realize that your business is an entity of its own and should be treated as such.
Whether your business is a sole proprietorship or a corporation with multiple investors, the finances of the business should never be commingled with your own funds.
When you use the same bank and credit card accounts for personal and business use, it becomes difficult to keep track of which is which. A few reasons you should never commingle include:
- Tax reporting: Even a sole proprietor reports the income and expenses of their business on a separate form (Schedule C) on their 1040. You might miss out on deductible expenses for your business if you use your personal account and forget to document the details of your purchase or the source of a deposit.
- Recordkeeping: It’s much more difficult to keep track of what’s personal vs. business when all of your transactions are in one account. Many businesses pay utilities and other expenses to the same companies as residential or personal customers. If you are paying both out of the same account, it will require some effort to sort out which one is for your business.
Be Organized from the Start
Being organized with your business finances can greatly reduce the amount of stress you feel when starting your new business.
You have enough to think about during this process and running a business in general—you shouldn’t have to worry about where to find important documents or figure out how much you’ve spent on advertising. Here are some ways to get organized:
- Set up and use an accounting program like QuickBooks Online to keep track of your income and spending. If you are uncomfortable setting this up on your own, find a Certified QuickBooks ProAdvisor to help set you up correctly and train you on the best way to use the program. Having an expert guide you through this process can save you time, money, and anxiety. They’ll help you avoid mistakes and create workflows that work best for your business.
- Create a business-only space to work in your home. Even if your business has its own separate location, you’ll likely be working on business finances in your home. Find a place in your home that will be dedicated to working on the business—this could be home office or simply a table or desk that you use only when working on the business. This will help you to set boundaries between business and personal activities and reduce the likelihood that commingling will occur.
- Set up a filing system that makes it easy to find what you are looking for. I recommend using a cloud storage app, like Sharefile, OneDrive, or Box to store your documents because they are 100% portable and accessible no matter where you are or what device you are using. And they reduce the amount of paper in your office or workspace and the amount of time you’ll spend filing. You can also easily share documents with partners, employees, or others.
- Use an app like Google Calendar or Outlook to keep track of important deadlines, such as quarterly estimated tax or payroll deadlines, corporate filing deadlines, or contract start and end dates. If your business is deadline driven or work is performed by multiple partners or employees, consider finding a workflow app, like Insightly or Asana, that integrates with your calendar to keep track of who’s responsible for what and what stage the project is in.
Ask for Help When You Need It
You might be savvy about managing your business finances and capable of doing many of the bookkeeping and accounting for the business on your own. But if you feel uncomfortable or unsure about what to do, find a qualified accounting professional to help you.
In fact, you should consider working with an accountant even if you are confident in your bookkeeping abilities. A recent study showed that small businesses were 89% more likely to succeed beyond five years when they worked with an accounting professional.
If you’re not sure where to find the right kind of help, check with your local SBDC (Small Business Development Center). They can help connect you to resources, from classes on basic bookkeeping skills and how to get started with QuickBooks, to referrals to accountants and other financial consultants who can help you get set and stay on track with your business accounting.
from Fundera Ledger https://www.fundera.com/blog/business-accounting