While you may be focused on developing your business model,
creating and launching a viable product or service solution for the
marketplace, never forget to consider the basics of business as the foundation for your success. One of these basic processes is bookkeeping. While you
may not have many complex transactions or an extensive amount of capital to track
on a balance sheet, it is critical to develop the financial management framework
that will eventually be necessary.
Consider these aspects of bookkeeping and how you will
eventually need to incorporate them into your start-up:
Automated Processes
There’s saving money, and then there’s saving money. One thing
you should invest in is any aspect of your bookkeeping that can be automated
rather than falling back on manual methods like ledger books, a checkbook, and graph paper. Starting out
in a manual frame of mind with your financial records will only
increase the time it takes to finish, plus lead to greater human error.
Instead, start researching software or cloud-based systems where you can
automate the entire process, which will also help to handle future tasks, such
as payroll and payroll reports, tax payments, employment benefits, and more.
Accurate Record Keeping
Accurate financial records tell you a lot, so it is vital that
you start learning how to keep good records even before you start. Accurate
records come from regular and consistent data entry of financial information,
including what you make and what you spend.
Along these lines, you will need to make sure you keep and track
all receipts, especially when you are a small business owner or entrepreneur
with a start-up who may be using your personal account to fund
the business. You can begin with record keeping almost as soon as your start-up
business involves money you or others invested, which is pretty much the first day you write a check, charge
something, or pay cash for anything related to your start-up.
Having good records means you can get a clear picture of sales
and expenses to make changes before any of these problems adversely impact your
business. It also tells you if you even have a viable business or not. If you
are continuing to look for funding, starting to keep accurate records now can
help to obtain financing because any investor will want to see current and
future projected financial statements, such as an income statement, cash flow
statement, and balance sheet.
Even suppliers or strategic partners may want to see this type
of information, so if you don’t develop good record keeping habits now, then
you may lose investors, creditors, and partners in the near future. Accurate
records also help you to budget, manage cash flow, and prepare state and
federal income tax returns, comply with payroll rules, submit sales tax
information, and eventually distribute profits
I put together a guide to invoicing that should help
you keep track of all your bills as well as making sure that all your books are
in order.
Compliance and Tax Obligations
As
you develop your start-up, you will need to decide on its legal structure. Will
it be a sole proprietorship, LLC, or partnership so that you claim business
income as part of your personal tax return? Or, will your start-up become a
corporation in which it becomes a separate tax entity and will require a
corporate tax filing and corporate tax obligations.
Consider how this tax obligation will impact your bookkeeping
knowledge and records as well as your available money that may need to go
toward these tax obligations. And, if you are selling a product, you may also
have to know how to report sales tax.
Cash or Accrual Method?
This mysterious question is an important decision
to be made. You will either use a cash or accrual method for keeping your
financial records. While the cash method requires that you recognize revenue
and expenses at the time they are received or paid, the accrual method only
recognizes these when the transaction occurs even if there has not been a receipt
or payment made. This second method requires that you continually track
receivables and payables within your bookkeeping records.
If your business has revenues that are less than $5 million, you
can use the cash method, but if more than that you must use the accrual method.
Payroll Planning
Even if you are just starting off with paying yourself or you
have a very small team, getting to know a payroll system and deciding how to
implement is important to prepare in advance. While you do this, you can also
consider how you will grow your team and whether they will be employees or
independent contractors.
If you plan on making them employees, you will definitely need
to understand payroll schedules in order to withhold taxes from paychecks. For
independent contractors, you will still need to track what you pay them and
then file a 1099 for each one where you have paid them over $600 in a year. In
thinking about this and how complex payroll can get, remember that there is
software as well as payroll outsource companies that can help you with all
types of bookkeeping activities related to this part of your start-up.
Financial Expertise
Think about what type of financial expertise you might want to
procure. This could be a part-time, or outsourced, bookkeeper who is either
local or who works virtually. As you grow and are in need of more complex
bookkeeping services you will need to have someone in-house or use an
accountant. It does not hurt to start researching or networking for financial
expertise with bookkeeping and financial records.
With so many aspects of your business to handle, you want to
make sure you find a trustworthy, knowledgeable, and skilled financial person
who can help you keep good records, stay compliant, and provide insights into
what the books are saying about the health of your start-up.
Staying on Top of the Books
Establishing a sound financial process for bookkeeping in
advance will provide you with critical information that will help you make
decisions about your start-up along the way. This data includes whether you are
actually making money or not so you can provide your investors with reports on
how the business is doing and pinpoint areas where changes may be made.
Having automated processes, good records, knowledge of
compliance and taxes, a solid payroll system, and a team of financial talent
will be a solid framework to help scale up your company’s financial reporting.
Best known as an Entrepreneur and Connector. John Rampton was recently named #3 on Top 50 Online
Influencers in the World by Entrepreneur Magazine as well as a blogging expert
by Forbes. Awarded Top 10 Most Influential PPC Experts in the World for the
past 3 years. He is the Founder and CEO of Due.com.