Start-Up Businesses: Do these Accounting Tasks FirstPosted on June 26th, 2017
Starting your own small business is an exciting time, filled with plenty of activities to keep you busy. To get started the right way, consider your financial objectives first and take the following steps:
Select a Business Structure
The type of business entity you choose plays an important role in many processes, especially taxation. Consider whether you would prefer a pass-through entity, where income and losses are reported on your personal tax return, or a corporation, that is considered a separate, taxable entity. Selecting the right structure for your business helps to minimize your tax liability and avoid the burden of double taxation.
Obtain an EIN
Your employer identification number (EIN) may be required as a part of the business set up process, depending on the entity type you choose. It is a good idea to obtain an EIN immediately. You will need an EIN to pay employee wages and distribute funds for retirement plans. Some clients will even need an EIN to establish business bank accounts. You can easily obtain an EIN online at irs.gov
Get your Records Organized
While you don’t have to create a sophisticated system to manage your paper trail, it is important to starting keeping track of information as soon as possible. This includes sales tickets for income earned, receipts for expenses paid, bank statements, and any other documents that demonstrate cash flow into and out of your business. While a lot of banking and money transfers into and out of your business are completed online, you should collect and organize any physical paperwork that you do accumulate. These can be easily stored in binders or folders with plastic sheet covers.
Create a Bookkeeping System and Accounting Method
With your records now organized, you will need to develop a system to track income and expenses. The simplest way to do this is by recording income on a daily basis and expenses on a weekly or monthly basis. Consider if you’ll use an accrual or cash method of accounting. Under the cash basis, income is recognized when it is received, and expenses are recognized when they are paid. Under the accrual method, income is recognized when it is earned and expenses are recognized when they are incurred. As a small business, the cash method may best serve your needs. Efficient and informative bookkeeping and accounting strategies are essential for everyday operations and successful tax reporting.
If you need help getting your business established and profitable by implementing sound financial strategies, contact Davis and Associates today. Our small business professionals are experienced in helping entrepreneurs make smart choices for long-term success.