Unless you are in the accounting business, then bookkeeping is probably the most stressful and cumbersome part of your new business. In the beginning, when you are excited to be starting your new business and overwhelmed with decisions that need to be made, it can be tempting to put off figuring out how to manage finances. Remember that financial problems are the number one reason that new businesses fail. So, since it is one of those things you have to do, so let’s sort through some ways to make it as painless as possible.
The first step is deciding if you will do your own accounting with accounting software or hire a bookkeeper. Today’s accounting software does make keeping track of your business easier than ever. The advantages of doing it yourself include saving the expense of hiring an accounting service plus you have all the information about your company available at your fingertips.
Whether you decide to hire an accounting service or purchase accounting software, make sure you know what you are getting for your money. Once that decision is made, then you still have to establish basic accounting practices for your business. Five tips to make that easier:
1. Open a business bank account. No matter how large or small your new business is, you need a separate business account. Simply dropping money into your personal account is a disaster waiting to happen. At all times you need to keep business and personal expenses separate.
2. Keep all receipts. Every. Single. One. As a new business owner, you may not know exactly what things are tax deductions and what are not. There are some surprising things that you can actually deduct from your taxes, so keep every one of those receipts. Receipts will help you track every business expense.
3. Accurately record income. This means that every sale or hour billed and paid, needs to be recorded.
4. Be prepared for major expenses. It is often tempting to spend money as quickly as it comes in for personal needs or to put back into the business. Unfortunately, there will always be unexpected expenses. As soon as you are generating revenue, having an amount set back to cover these unforeseen expenses is critical. You can quickly find yourself in financial trouble if you have to rely on high-interest credit to cover expenses. Make saving enough to carry you through a priority.
5. Depending on the size of your business, payroll (including paying yourself) may account for as much as 70% of your total budget. Make sure you are not over- or under-paying your employees. Your professional accounting service or your accounting software will help you calculate payroll taxes. Do not confuse payroll taxes with income taxes. Payroll taxes have different rules and deadlines.
Finances are the backbone of any business. Make sure you have a strong foundation to build your business on. Ensuring that you institute strong and healthy financial practices when you start your business will save you time and stress in trying to back-track to figure out where money was spent or how much you made.