Starting Up Right: Financial Basics for New Businesses
Updated: Jun 10
Finances and Taxes are the least exciting elements of starting a business, but setting up the business correctly is the key to long-term financial success. Taking the time to understand the big picture of your businesses finances and maintain your financial books over time can help you prepare for growth and slow times, secure investors, create budgets, and manage your debt.
The common goal of all business bookkeeping is to accurately reflect the expenses and income of the business. This is done by reviewing transactions as they appear on the bank statement and categorizing them appropriately using a list called the Chart of Accounts. The Chart of Accounts includes all the categories that apply to the business, such as office supplies, consulting fees, and sales income. At the end of the year, each category is added up and reported to your tax-preparer for annual income taxes.
There are many resources to help you streamline your businesses bookkeeping practices. Bookkeeping software such as QuickBooks and Xero facilitates and automates the categorizing process, if you're willing to take on the learning curve. They also provide you with dozens of reports that can help you run your business more effectively. Bookkeepers can help you cover many of the monthly tasks and often offer all the services of an accountant. Only a Certified Public Accountant (CPA) can provide financial reports for external use.
Super important note: You must save your receipts even if your books are a perfect reflection of your expenses! In the event of an audit, even a random one, the IRS will take no substitute for itemized receipts. Digital copies are A-Okay. We recommend simply placing them in an envelope and filing them away each year!
