Launching a business is an exciting time but there are so many things to think about! Sometimes this means the boring and administrative stuff can fall behind because there’s only so much time in the day. Here’s a short list you can use to make sure these items get tackled and don’t come back to bite you later when you’re really busy! Follow these 6 easy accounting things to ensure you're business is financially ship-shape.
1. Open a Business Bank Account
Your business is generally required to keep track of its income and expenses separate from your personal funds or those of your other businesses. Even if you’re not, it’s much better to separate your business activity from your personal expenses and easy to do. The best way to accomplish this is to open a new bank account in the name of your new company. The bank will require you present your registration paperwork and your EIN (is the US) in order to open an account in your company’s name so be sure to print out your paperwork so you can show them.
Often times banks will suggest you open several accounts because that is how they make their money but for a new business you really only need a basic checking account. They may require a savings account as well but anything beyond that is unnecessary. I recommend using a bigger business friendly bank with no or low fees and a good online banking system as that is most likely how you will generally interact with your bank.
2. Designate a Separate Credit Card for Business
Along with not co-mingling expenses between your personal bank account and your business activities, it is also a good idea to set aside a credit card just for business use. While the business itself won’t likely qualify to get a credit card on its own, at least in the early days, you can use a personal card exclusively for business and use a different one just for personal use. This way, you will know exactly what the business is spending and what it owes without having to scrutinize your statements each month trying to remember what was what.
3. Get your Bookkeeping Set Up
Along with getting a bank account open the best way to handle bookkeeping for your new business is to start the process early! Since every cost related to starting the business is a deductible expense you want to make sure you start tracking them immediately- including the cost of registering the business.
The right way to do this is use a business bookkeeping program like QuickBooks or Xero that is designed to help your do your business accounting correctly. If you don’t have time to do it yourself or don’t want to take the time to learn, I highly recommend outsourcing this to a reliable firm. Of course, I am biased, but after having cleaned up countless bookkeeping disasters from self-taught clients or so-called professionals I can definitely tell you having it done right by an expert from the start is the cheapest option.
4. Get Your Local Licenses in Order
Depending on where you live and what kind of business you are getting into this process may be very simple or it may become a nightmare. Hopefully you are already aware of what you need but if not doing some online searches for your city as well as local area and state should steer you in the right direction. Things are all over the place here as some areas have really worked hard to cut red tape and make things easy and others still seem to be thirty years behind in this department. For most businesses you need a local business license, even if you work from home.
5. Register for Sales Tax or a Seller’s Permit
If you live in a state that collects sales tax and you are selling items to the general public you are going to be required to collect and pay sales tax. It is up to you to find out how much to collect, when you have to pay it and how it needs to be paid. Unfortunately, most states take a tough stance against businesses that fail to do this or do so late. To avoid penalties and problems make sure you find out what your obligations are before you start making sales.
When you sell online, some platforms will take care of collecting this for you, like Amazon and eBay. But others won’t, such as Shopify and Wix. In those cases, you need to register, collect, and pay yourself to the state. Whether or not you may owe in other states you don’t live in or what to do when you reside outside the US can get even more complicated. In these cases, don’t panic but do take the time to consult with an expert on your particular obligations so you can keep yourself out of trouble.
6. Track Your Progress
Now that you’ve got all your ducks in a row on the accounting side, don’t stop there! There is more than just the 6 easy accounting things mentioned above. Sometimes people think accounting is just so you know what to pay in taxes at the end of the year, but it should be much more than that. Good bookkeeping is really a tool to help you manage the business and make important decisions such as where to invest more money and where to pull back. It can also tell you when it’s time to hire an employee or look at adjusting prices or negotiate with vendors.
If you aren’t using it to see how well the business is performing each month then you are missing out on an important tool for growing the business and improving profits.
Optimizing your business through accounting doesn't have to be complicated. By focusing on simple yet effective strategies, you can enhance your financial management significantly. One key approach is to leverage the pivot advantage accounting methodology, which emphasizes adapting swiftly to changing circumstances. Start by organizing your expenses and income systematically, using accounting software or spreadsheets. Regularly reconcile your accounts to ensure accuracy and identify any discrepancies promptly.
Here are some specific things you can be watching:
- Revenue growth- how does this month’s total sales compare to last month? How does it compare to the same month last year?
- Profit as a percent of income- how much money is the business making? If it’s still losing money, is it losing less and less and on track for profitability?
- Cost to acquire a customer- how much money does it cost to get each new customer and is that less than the customer is bringing in? Is this increasing or decreasing over time?
- Value per customer- how much is each customer worth? Do they buy just once or return and are there more things you can sell them to increase the value of each one?
- Cost of Goods Sold as a percent of income- if you sell physical products, are you keeping a close eye on your product cost vs the price you are charging? With the cost of shipping fluctuating and the price of raw materials changing all the time you need to make sure you are still making money on each of the products you sell and that changing costs are being accounted for in your pricing, ad spend and every other aspect of getting those items into the hands of your customers. Otherwise, even as sales increase you can see profits shrink down to nothing which means all your hard work has little reward.
None of these tasks is particularly hard or time consuming but they are easy to let fall by the wayside with everything else your business requires of you. But keep in mind letting these things go can often come back to bite you later so it’s worth spending some time now to get it all set up right before things get really crazy!
This Expert Guest Post Was Provided By:
Matt Remuzzi is the owner of CapForge Bookkeeping, a firm that works small business owners and new start ups across the country to make their bookkeeping painless. He is a serial business owner himself and works with clients to help them become successful above and beyond simply balancing the books. If you need help with your books or just have general questions, you can reach him at [email protected] or 858-633-3573.
