Can you recall the last time you encountered a brain freeze? The thought of Accounting may cause brain freezes for new entrepreneurs but the basics I’m about to share with you will ease the pressure of what Accounting means to your business when getting started.
Here are five ways to understanding Accounting in your business:
1. The business structure must fit
It is up to you to choose which kind of structure is best for you and your business, but the importance to the process is not to guess with your selection. This decision matters to the tax structure your business will be obligated to understand and to the amount of paperwork to complete.
The most common forms of business are sole proprietorship, partnership, limited liability company (LLC) corporation and S corporation. Each form comes with different tax consequences, you will have to make your selection wisely and choose the structure that best matches your business needs.
Below are some of the tax implications to the most common business tax structures:
2. Business activity needs a bank account
The ability to maximize your business revenue starts with understanding what is required to be reported. The separation of business income and expenses from personal is by far one of the most important actions to take first. This can be accomplished with the setup of a new bank account exclusively for your business.
Many banks offer an introductory period of free banking which could be a few months or longer but it is key to understand what that means for your business after the introductory period. Don’t feel obligated to open a bank account with your current bank, get the best deal and setup for you and your business.
In order to open a business account, you’re required to have a business name, which may be a DBA or one of the common business structures formed and registered with your State. Do your research on bank requirement.
3. Budget with the funds you have
As a new entrepreneur you may see a budget as a future goal or task for your business but that is far from the truth.
You are certainly spending money when starting a new business thus why not understand how much you can truly afford to spend. The first three months of the business can be the most critical time frame to identify how much income is necessary to manage and maintain as well as how much you can afford to spend on business expenses.
Allow your budget to be your weekly or monthly resource to understanding your business cash flow.
4. Track your expenses as they occur
It’ s one thing to say you are in business and another to develop a habit of consistency to track your expenses. More often than not you may find yourself meeting and building relationships with new clients, traveling to a speaking engagement or replacing supplies with the use of your personal debit banking card or credit card.
If you miss capturing these cost, not only will your business pay more tax than necessary but you also do not have a good record of how much your business is costing you.
5. Get paid for your services
You are contracted to complete the work, now its time to get paid. Have a payment policy in place which screams “professional” to clients and helps ensure that you and your clients are on the same page right front he outset, says John Rampton, VP from Entrepreneur Magazine.
You may also consider offering customers a discount for paying invoices early, can help you get paid more quickly too. For instance, if you usually policy is to have payments due in 30 days, offer a small discount such as two percent to customers who pay within 14 days.
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