Small business accounting involves keeping a comprehensive record of all the expenses and income and correctly extracting financial details from financial transactions. New business accounting is an essential core that enables small business owners to manage and track their finances during their business’s early stages.


Accounting for New Businesses

This guide explores tips on how you can set up your finances and place your new business on the road to accounting success.

Open a Bank Account

After registering your new company, you have to choose where to keep the business income. LLCs and corporations are required to keep their finances distinct from the owner’s personal accounts, while sole proprietors do not have such limitations.

Keeping your business and personal finances separate in personal and business accounts will make the tax season less complicated. During the tax period, you don’t have to be concerned about disentangling your business and personal finances. Managing your finances in separate accounts also allows your Carmel accountant and bookkeeper to evaluate your business’s growth quickly.

Begin by opening two accounts: a checking account and savings account to organize your finances better. The checking account can be designated for revenue while the savings account is designated for organizing funds for taxes.

Monitor Your Spending

One of the cornerstones of solid new business accounting is accurate and effective expense monitoring.
It’s a vital step that allows you to monitor how your business develops, track tax-deductible expenses, create financial statements, and prepare tax returns.

Small business accounting requires you to establish a method for organizing receipts and other essential records. Most small business expenses are tax-deductible. However, for you to claim the deductions, the Internal Revenue Service requires business owners to keep records of their spending.

You should always hold on to the following:

  • Credit card and bank statements
  • Receipts
  • Bills
  • Invoices
  • Canceled checks
  • Financial information from your bookkeeperProof of payments
  • Past tax returns
  • 1099 and W2 documents
  • Any other documentary proof that supports an item of credit, deduction, or income displayed on your tax return

Design a bookkeeping system

Bookkeeping may appear as a dull, daunting job, but it has to be done monthly. Bookkeeping is the day to day method of recording transactions, classifying them, and rectifying bank statements. As a new business owner, you can manage your books in the following ways:
• You can decide the DIY way and use software such as QuickBooks or an Excel spreadsheet to manage your books.
• You can decide to use a part-time or outsourced bookkeeper that’s either cloud or local based. This allows you to focus only on the key processes of your business.
• When your business grows, you can hire an accountant or an in-house bookkeeper.

The suitable method for you will depend on your company’s structure, size, and accounting requirements.

Hire a Chartered Professional Accountant

Along with a lawyer and a bookkeeper, the services of a Carmel accountant are vital to small businesses. Hiring an accountant will save you money and time. A good accountant will assist you in lease negotiations, treasury and cash management, and continuing financial reporting.

Accountants also help small business owners with the following tasks:

  • Advise you on your company’s structure.
  • Write a business plan when forming your business.
  • Assist you in getting required licenses such as business licenses, employment accounts, and sales tax permits.
  • Handle complex sales tax issues.
  • Deal with complex labor expenses such as wage and labor compliance problems.
  • Assist you in meeting the requirements for licensing agencies or creditors
  • Keep inventory records by stock numbers, date purchased, purchase prices, sale prices, and dates sold.

Determine How You’ll Get Paid

New business accounting demands that you establish a method of accepting payment once you start making sales. Here are some of the payment setups small business owners use:

  • In-person payment and POS system – This is the right payment method if your business does not process a substantial number of in-person payments daily.
  • Online payments only – This is a payment method for transactions that take place through the internet.
  • POS payments only – This method uses a POS system or a separate credit card reader. For both options, you have to open a merchant account that acts as an intermediary between your business account and the payment system, withdrawing, and depositing funds.

Define Your Tax Obligations

According to the IRS, your tax obligations depend on the structure of your business. For instance, those self-employed – sole proprietors, heads of partnerships, and LCCs normally claim business income on their personal tax returns.
On the other hand, corporations are different entities and are taxed independently from their owners. However, based on how much they earn, they will also be mandated to pay estimated quarterly taxes.

Establish a Payroll System

As your business develops, you may find yourself looking for outside help. You need to establish whether you will hire employees or contractors. Like bookkeeping, payroll is an essential task that can consume all your time and money.

You have to establish a payroll schedule for employees and make sure you are withholding the right amount of taxes. There are many accounting software that can help you set up a payroll schedule. For contractors, make sure you monitor how much you are paying them because you may be required to file their 1099s at the end of the year.

Apply For Financing

Your company may need external funding for many instances, be it through investors, business partners, line of credit, or a small business loan. For example, you might be facing unforeseen sales reduction caused by overpowering external circumstances, or you need a cash boost during slow business periods.

If you have significant growth objectives, you have to get financing to make investments in inventory, hiring, and new product development.

New business accounting is vital in ensuring your startup is on the right path to financial success. Contact Savage Accountancy to guide you every step of the way of small business accounting, from payroll and bookkeeping services, tax planning and preparation, and business valuation services.