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Starting a business is exciting, but if you don’t get your finances in order from day one, the excitement can quickly turn into stress. Accounting is one of the most important aspects of running a business. No matter your industry, business model, or sales approach, keeping your finances organized from the start will save you a lot of stress as your business grows.
There are some questions you’ll want to answer as you launch your business. To help you find the answers, here are things to consider for your accounting and putting yourself in a strong financial position from day one.
Step 1: Open a Business Bank Account
Before you even start thinking about accounting processes, open a dedicated business bank account and credit card if you do not already have them. Mixing personal and business finances may feel easier, especially as a sole proprietor, but keeping them separate will make tracking income and expenses much simpler and make tax preparation much easier.
Step 2: Choose an Accounting Method
There are two main methods for tracking income and expenses: cash basis and accrual basis.
Many small businesses choose cash accounting because it is simpler. With this method, you record income when a customer pays and record expenses when you incur them. Accrual accounting, by contrast, requires you to record income when you invoice a customer, even if the payment comes later, and track expenses when bills are received, even if not yet paid.
Each method has advantages, and businesses with revenue under $25 million can choose whichever works best. Once you pick a method, you need to stick with it for tax purposes.
Step 3: Select Your Accounting Software
Almost all modern businesses use some type of accounting software to track income and expenses. While spreadsheets or paper ledgers can work, they require much more manual effort and increase the risk of mistakes.
When selecting software, look for a solution that can grow with your business and provides strong customer support. All-in-one options that include bookkeeping, invoicing, payroll, and tax support can offer great value. You may also choose separate programs for specific functions if you need more advanced features.
Step 4: Set Up Your Chart of Accounts
To keep your finances organized, create a chart of accounts. At a basic level, your accounts should cover assets, liabilities, revenues, expenses, and equity.
Each account can have sub-accounts for more detail. For example, expenses might include advertising, office supplies, employee wages, payroll taxes, and software subscriptions. Properly categorizing transactions from the start makes it easier for any accountant to prepare tax returns.
Step 5: Regularly Review Your Finances
Setting up accounts is only the beginning. You will need to regularly review and reconcile your accounts to make sure every transaction is properly recorded and categorized. Even with automated imports, monthly checks are important to catch errors or omissions.
You do not have to handle this alone. If hiring an in-house accountant is not feasible, you can outsource bookkeeping and payroll to a us. Reach out to us at 310-534-5577 or contact@abanadp.com to start the process. My team and I are eager to assist you!
