When you start a small business, your initial enthusiasm, drive, and energy probably will be focused on translating your product or service into a profit-making venture. Setting up bookkeeping systems, including those for business tax reporting and filing, may be low on your list of priorities. While that is understandable, it is not wise, since inadequate bookkeeping could be costly – in terms of time and money – in the long run. Here are some tips for setting up bookkeeping for a small business.
Decide on a Business Structure
Before you start your business, do some research at the local library or on the Internet about the types of business structures (sole proprietorship, partnership, limited liability company, and corporation) and the advantages and disadvantages of each. How you structure your business will affect your bookkeeping, including how you account for your business’s revenue and costs and your tax reporting. It also can affect your personal exposure with regard to business liabilities. If in doubt, consult your business attorney and/or accountant about which structure is best for your business and why.
Get Professional Help
Whatever business structure you choose, but especially if your business will be a corporation, talk to your accountant. Find out what records you need to keep and what expenses are deductible. Also discuss whether you should pay yourself a salary and, if so, how much it should be. This can be an important issue, because, in some cases, the IRS may construe not taking a salary as a way to avoid payroll taxes. In addition, your accountant can explain what tax payments and filings your business will have to make.
You also may need to consult an attorney, especially if your business will be in a form other than a sole proprietorship, so that your business can be properly documented according to your state laws and/or so that the rights and responsibilities of all owners can be spelled out and protected.
Decide How You Will Keep Your Books
If, like many new businesses, yours doesn’t have the cash to pay a bookkeeper initially, then you may have to take on this chore yourself. If so, you can minimize the time it takes and avoid mistakes by setting up a record-keeping system even before your business opens its doors. This can be as simple as creating Excel files for recording revenue and expenses or it can be accounting software that prepares financial statements for you once you input data. Today’s accounting software is easy to use, especially for a relatively simple business; it is not overly expensive; and it can be a time saver for you and your accountant. Also, set up a filing system for your financial records.
Open a Business Bank Account
Having a separate bank account for your business is essential because mingling business and personal income and expenses can cause confusion and result in costly errors in your tax reporting.
Take Taxes Seriously
Many new businesses run into financial trouble because they don’t understand their tax filing responsibilities. This is understandable; not only may your business have to pay federal income, payroll and unemployment taxes, but it will probably be responsible for state and local income taxes and state unemployment taxes, may have to pay state sales taxes and disability taxes, and perhaps will be liable for other state or local business taxes and fees.
Whether you or your accountant handle the tax filings for your business, you will be responsible for providing the necessary data to support them, and this information must be available on a timely basis. Therefore, ask your accountant for a thorough tax tutorial. Many tax returns and payments can be completed online these days through secure federal, state, and local websites. As daunting as the tax system may seem, once you understand your tax liabilities and are registered online, the actual filing process often is relatively quick and easy.
Keep Your Books Current
Accurate and up-to-date bookkeeping is necessary for a successful business. Therefore, even if you dread this chore, set aside time to update your business’s books on a regular basis, perhaps once a week.
Source:
http://www.irs.gov/newsroom/article/0,,id=183918,00.html , Choosing a Business Structure
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