One of the most crucial aspects of your launch is deciding how to organize and handle your cash. How are payments going to be made? Where are you going to hide your cash? What accounting techniques are you going to use to grow your money?
Taking the time to carefully plan your small business accounting system will benefit you in more ways than one, including making annual tax filing simpler. Time, money, and stress will all be spared. You will always have up-to-date, accurate financial statements available to you, which are valuable records that illustrate the state of your company at any given time.
Additionally, it will be simpler to collaborate with an accountant, bookkeeper, and any prospective buyers who may approach you when the time comes to sell. Put your company on the road to long-term growth and financial success by following the instructions in this handbook.
Choosing a Good CPA
Early on in the process, you should collaborate with a Certified Public Accountant (CPA) if you’re serious about expanding and (someday) selling your company.
In addition to helping you file your tax return, a qualified CPA can assist you with:
- Lease agreements
- Treasury management;
- Tax planning
- Tax compliance
- Financial reporting
Additionally, a CPA can assist you in making long-term, strategic decisions on the direction of your company.
Working with a CPA who has dealt with clients in your field before is preferable. Seek referrals from other entrepreneurs in your industry. Once you have a few leads, get in touch with each one separately. Any CPA ought to be open to having a free consultation with you.
Talk About Prices Up Front
Don’t forget to bring up any potential CPA’s fees during the consultation. The majority bill by the hour, although others could need a monthly retainer.
Questions to Put Before Your CPA
Once you’ve decided on an accountant to collaborate with, make use of these inquiries to help direct your first discussion. Ensure that you understand every accounting need associated with running and expanding your company.
- What expenses may I write off for my business?
- Which legal structure is best for my type of business?
- Does using a payroll service need registration?
- Is payroll insurance necessary?
- What additional kinds of insurance do I require for my business?
- What impact does my company’s legal structure have on filing taxes?
- What do I owe in taxes?
- Must I get sales tax revenue?
- Does my company have a connection to another state for sales taxes?
- What steps can I take all year long to lower my tax liability?
- What documents and records must I maintain on file?
Pick the Right Bank for Your Requirements
Keep in mind that every firm is unique while searching for a bank that offers small business bank accounts. Your preferred banking method and the type of business you run will determine which bank is “right” for you.
When you’re comparing choices, keep the following questions in mind:
- Does the bank have to operate solely online? Or will you require physical access at a branch nearby?
- How well does your Point of Sale (POS) system work with the bank? (If you choose to use one.)
- What security and fraud protection measures does the bank provide? Do they have access to a credit line?
- Is it possible to designate different users for business partners using the bank’s online banking option?
- What sort of costs do they intend to impose on you?
- Does the bank provide company credit cards and savings accounts as well?
Additionally, it’s advantageous if the bank actively supports small companies. For instance, free business checking accounts are provided by certain banks. Before choosing a bank, make sure you weigh your options and pay attention to any regulations, including keeping a minimum amount.
Opening a money market account for savings could be a wise decision, depending on your needs. Compared to conventional business savings accounts, this type of interest-bearing account gives a greater yield (money market account interest rates average 0.11% nationwide). The drawback? There will be restrictions on the amount you can write checks with and a greater minimum amount that needs to be kept in the account.
Your company must be registered with the state in which it operates and have a registered business name in order to open any type of bank account for commercial use. Additionally, an Employer Identification Number (EIN) will be required of you.
Before you meet with a bank representative, give them a call and find out what documentation you need to bring.
Take a Look at Business Credit Cards
Let’s be clear before we begin: using credit cards to finance your business is not a good idea. The interest rates on credit cards are not advantageous. Furthermore, a credit card does not offer as much funding as a business loan or a line of credit.
Having a business credit card might be useful, though, if you are sure you can use it wisely to expand your company and pay off your balance in full each month.
By using a small business credit card wisely, you can:
- Over time, raise your company’s credit rating
- Gain rewards like cash-back rebates or travel points
- Get additional warranty on purchases and fraud protection
- Receive an annual summary of your business expenses and stay organized
Use the Credit Card Comparison feature on Nerd wallet to see a summary of the cards that are available to you.
Separate Your Finances
We have to emphasize this again. Don’t combine your personal and business finances once your business bank accounts are operational. This implies:
Paying with your personal bank card for a company expense is not advised. Keep money out of your personal accounts and into your business accounts if your company is formed.
Using your business account for personal transactions (or vice versa) isn’t the end of the world, granted your bookkeeper and accountant are on board with it and you take care to flag transactions appropriately.
However, errors do occur. Personal bank accounts may contain business expenses that are overlooked. Additionally, the following issues may surface if your personal and business money are combined.
Your Bookkeeping Will Become Too Hard
It is simpler for you, your bookkeeper, and your CPA to handle your accounting if you keep track of all of your business transactions in a single account. When tax time rolls around, you or your CPA will need to comb through your bank records to determine which spending are specific to your business if everything is lumped into one account. You’ll lose money, time, and possibly a few headaches doing this.
You Could Experience Financial Losses
You lose out on a tax deduction when a company expense disappears into your personal account and isn’t reported on your tax return. Also, you will have to pay your CPA more in accounting costs if they have to spend time separating your personal from business expenses.
You Might No Longer Have Legal Defense
What is meant by the “corporate veil”? It speaks of the division of powers that the law places between a company and its shareholders. To put it another way, the corporate veil shields a company’s owners from lawsuits brought against the company, as well as their personal assets.
For example, the corporate veil would shield you from being held personally accountable for a debt if your corporation was in default on a payment. As an entity, your corporation would be held accountable instead. In the event that your company filed for bankruptcy, the corporate veil would shield you from having to give up assets or personal money to pay off the company’s debt.
If the corporate veil is breached, courts will not consider this additional legal defense. You guessed it: combining personal and business spending is one of the simplest methods to “pierce” the corporate veil.
Legally speaking, corporations must keep their corporate assets and the owners’ personal assets apart. The clear division that once existed between the company and its owners is eliminated when your expenses are combined.
The corporate veil’s protection may be disregarded by the courts if they discover that you have jumbled your finances.