For some small-business owners, tracking and recording financial data is an immediate priority. Other entrepreneurs tend to focus more on growth and product design, while bills and receipts pile up. Whichever type of business owner you are, following a few simple steps during the early stages of development can ease some of the painful crunch of tax reporting.
1. Formalize Your Business
Before you can start keeping track of finances, your company must be properly defined and licensed. One of the first steps to formalizing a new business venture is to apply for a tax identification number. Research state and federal corporate business permit and license requirements and file the appropriate paperwork. Also, select a business structure that's based on planned growth and the number of employees you intend to hire. Business structures can include sole proprietorships, limited liability companies (LLCs), cooperatives, and corporations.
2. Contact Small-Business Groups
For general questions about accounting, seek out local small-business associations and advisory groups. You can also check out your closest Small Business Development Center, where you'll find workshops and consulting services. SCORE, a national nonprofit dedicated to assisting small businesses, is another great resource if they have a chapter in your area. SCORE offers free seminars, accounting help, and one-on-one mentoring services from local experts.
3. Open a Separate Bank Account and Credit Card
Separating business from pleasure is a must. Setting up an exclusive bank account and business credit card is the best way to avoid mixing personal and business finances — a common error made by new business owners. It also eases the complexity of tracking receipts and disbursements until you establish a formal accounting system while also building up business credit. According to a recent Forbes article, whether your transactions appear on your personal or business credit report will depend entirely on the business card issuer you choose.
4. Obtain an Online Accounting Program
As soon as your business carries out a financial transaction, it will need to be logged and reported. As a business expands, the amount of financial data also increases, emphasizing your need for a tailored accounting system to manage everything from simple daily invoices to complex annual reports. Online accounting offers various other benefits, such as bookkeeping collaboration through the cloud, information security controls designed to protect your information, and a customized mobile experience.
5. Seek Help When Necessary
If you've tried the above steps and still feel overwhelmed, it may be time to hire a professional. Although ongoing accounting services may not be required, just one or two consultations can help realign your business. When searching for an accountant, ask your fellow business owners for referrals or check with your State Board of Accountancy for qualified accountants in your area.
Starting the accounting process for a new small business can be complex. Affirming your business structure, separating your business and personal transactions, organizing through cloud-based accounting, and seeking out advice from your local community can all alleviate the stresses that accompany managing your small business finances and lead to an easier tax season.