When you’re just getting your startup off the ground, paying for accounting services isn’t always affordable. Fortunately, it’s easy to set up a basic bookkeeping system that’s good enough to get your business off the ground.
One of the biggest mistakes small-business owners make is integrating their personal and business checking accounts. It’s vital to have at least one separate checking account for business spending and deposits.
When you open accounts with your bank, keep these points in mind:
- Your EIN. When you open your business checking account, use your company’s IRS-issued employee identification number (EIN) instead of your Social Security number.
- Check signing authority. Decide ahead of time who has the authority to sign checks for the business and whether you’ll require one or two signatures.
- Number of accounts. Some companies set up multiple accounts for deposits, collected taxes, payroll, and other essentials.
- Minimum balance. Avoid opening a bank account that requires a high minimum balance.
- Credit cards. Start with a single credit card, and authorize additional users as needed.
Instead of developing a spreadsheet system when you start your own business, invest in an online accounting program. You’ll be able to keep all of your invoices and accounts payable in one place, connect your bank account to your accounting system, and monitor any employee activity within your accounts.
QuickBooks Online has the advantage of integrating with Turbo Tax, and it’s good for businesses that manage a lot of inventory. Intuit also offers a QuickBooks-compatible mobile POS system if you operate a restaurant or retail business, which automatically updates sales and inventory in QuickBooks.
FreshBooks provides simple invoicing and easy-to-read reports for small service businesses, and it offers new capabilities for accepting credit card payments. It also has an easy-to-use mobile app for capturing receipt images and for time tracking on the go, but it’s not ideal if you manage inventory or have a lot of transactions.
When you invoice clients, be clear about when you expect payment, and send out reminders when customers have past due bills. Also, you can try tools like Fundbox, which will loan you cash against your invoices and allow you to pay the money back over a period of weeks.
If you make cash and check deposits to your business bank account, authorize a limited number of people to make deposits for your company. Always require two people to count the bank deposit before it’s taken to the bank, and retain copies of your deposit slips.
SCORE offers free downloadable cash flow worksheets to project both when you’ll receive deposits and when your bills are due. By entering both your incoming cash and your bill due dates on your spreadsheet, you can predict the optimal times to pay each bill. When you can, take advantage of discounts for early payment, but don’t pay early if you’re not confident you’ll have available cash later.
Also, avoid paying recurring bills with your credit card instead of your checking account. You’ll rack up interest quickly when you pay with your credit card, and you’ll limit your available credit.
Depending on the type of business you run, you’ll set aside different amounts for taxes. To avoid penalties, submit your tax payments on time:
- Sales, use, and excise tax. Check with your state’s Department of Revenue to learn when to submit these tax receipts. Also, if you have locations in multiple states, or if local municipalities collect these kinds of taxes, you’re responsible for collecting money and submitting it for every jurisdiction.
- Payroll tax. Employees require both federal and state income tax as well as FICA (Social Security and Medicare) withheld from their paychecks. You can deposit the money monthly or semi-weekly.
- Income tax. Keep track of your profits throughout the year to see how much you should set aside for income tax. Generally, you have to submit income tax payments on a quarterly basis, both to the IRS and to state governments, and you have to submit at least 90 percent of what you submitted the same time last year.
Keep Records of Transactions
Keep records of every business transaction, both within your cloud accounting system and via your checking and credit card statements. When you’re ready to visit an accountant, you’ll have everything on file and ready to go, and you won’t miss out on important tax deductions and credits.