Five New Business Accounting Tips
Are you an entrepreneur with a great business plan but don’t know where to start when it comes to the accounting? Whether you hire a bookkeeper or do the books yourself, you may find the following general accounting tips for new business owners helpful:
- Select the best type of entity for your business. There are several factors to consider in this decision, including liability protection and tax issues. For some, an S corporation may be the best choice, and for others, a limited liability company may be better. Since this is a complex decision, please consult with your attorney and with us, your Las Vegas CPAs. After forming your business entity, be sure to obtain an employer identification number from the IRS and let the IRS know about the tax structure. Don’t forget about state registration (for example, in Las Vegas, you may need to apply for a business license with Clark County and the City of Las Vegas, and file appropriate paperwork with the Nevada Secretary of State).
- Open a bank account in the business name, and if you want to use a credit card for business, get a credit card in the business name also. Keep your personal and business finances completely separate. Use your business accounts for business expenses and personal accounts for personal expenses. When purchasing a combination of business and personal items, ask the cashier to put them on separate receipts, paying for each out of the appropriate account. Separating your personal and business expenses produces cleaner accounting records and makes it easier to measure the financial results of your business.
- Invest in a good accounting software program. Maintaining a spreadsheet of income and expenses in Microsoft Excel or Google Docs may work for a business with a very small number of transactions, but spreadsheet programs become a nightmare to maintain as a business grows and they lack the reporting capabilities of more sophisticated accounting software. Please consult with us so we can assist you in the process of selecting an accounting software package.
- Reconcile each of your bank and credit card accounts monthly when the statements arrive. Reconciling is very important because it ensures that all financial activity that has gone through the bank and credit card accounts is recorded in the accounting software. It may also help you discover bank errors or fraudulent activity. If you hire a bookkeeper, be sure the bank statements are mailed to your home address so you can review the statements for unusual items before giving them to your bookkeeper for reconciling.
- Regularly monitor your business activity by looking at a report from your accounting software called “profit and loss” or “income statement.” This report shows your total income and expenses for a period, with the difference between those two numbers being your net income (profit) or loss. You should share these year-to-date numbers with your CPA, who can assist you in determining the amount of estimated income tax payments you should make or amount of federal income tax withholding you should have by the end of the year to cover your tax liability.