An accounting system is an integral part of a business. With a definitive system in place, a business can keep track of what it owns, to whom it owes money, and any outstanding accounts from its customers. Learning the basics of accounting can help you better understand the inner workings of your new business. As you grow, it’s easier to outsource or delegate the responsibility to a professional so that you can focus on other parts of your business.
We will take you through the essentials of setting up your accounting for a new business.
Get a Business Bank Account
The bank account will be necessary for accepting payments and paying your creditors. Mixing personal and business funds is a huge no-no. Open a separate bank account for businesses to avoid accounting blunders, inaccurate tax filings, and overspending. A separate payroll account should also be set up if you have employees.
To open a business bank account, you’ll need a few details. That include:
Social security number
Employer identification number
And others depending on the set-up of your company
Determine How You Will Record Transactions
How do you plan on recording transactions in your books? Maybe you’re considering:
Recording transactions by hand (e.g., spreadsheet) - Manually recording transactions by hand is the most time-consuming option for recording transactions. However, it is the cheapest solution for small business owners. When you record transactions by hand, manually account for each transaction and calculate totals.
Hiring an accountant - Hiring an accountant frees you from managing your books and making common accounting errors. It is the least time-consuming option, and If you hire an accountant, they will analyze, manage, compile financial statements and calculate totals for you.
Using accounting software - Accounting software is an excellent option to streamline accounting processes and save time.
Determine How Your Business Will Get Paid
Your business can’t grow if your customers don’t pay you to establish a clear customer payment policy to ensure you get paid for your products or services. Determine what kinds of payments you will accept from your customers. This may include:
Electronic Fund Transfer
Mobile wallet payment
If you sell to customers on credit, you’ll need to send out invoices later after providing your goods or services. And determine invoice payment terms, such as forms of acceptable payment, when payments are due, where to send the payment, late fees, etc.
Make a List of Creditors
This list will become your liability accounts in your accounting system. Include everyone you owe money to, such as vendors, credit card companies, mortgage companies, banks, and finance companies. Make sure to include the amounts owed to each of your creditors.
Keep a Record of Expenses
Tracking expenses is a crucial part of accounting. It helps you keep your books in order. Plus, you’ll thank yourself for keeping track of expenses come tax time. When keeping a record of your expenses, be sure to hang onto the following:
Bank and credit card statements
Proof of payments
Previous tax returns
Forms W-2, 1099-MISC, and 1099-NEC
The more documentation you keep in your records, the better off your business and books will be.
Set Up a Payroll System
As your business grows, you might need to hire employees or contractors to assist in running the business. In this case, you’ll have to establish a payroll processing system to handle payments. You want a payroll system that automates most tasks and automatically dishes out the funds for the best results. Also, as you add people to the payroll, it is important that you place them in the right category. Either as independent contractors or employees. Failure to do so might result in penalties from the IRS.
Set Up an Online Accounting System
Once you’ve established the steps above, all that is left is to set up an online accounting system. The easiest way is using cloud accounting software such as QuickBooks Online and Xero. Usually, it will come with everything you’ll need to record, analyze and report your business transactions.
Reach Out for Help
Everyone deserves a supportive team of people who care. Cloud Bookkeeping Inc’s team provides monthly bookkeeping and accurate financial reports. We’ll give you financial visibility throughout the year and deliver insights to make strategic business decisions.
Get in Touch with Us for Our Services
We don’t just say it; we deliver – our work speaks for us! Contact us for 30 mins of free consultation and opt for our Online Bookkeeping Service.
Cloud Bookkeeping, Inc.
3281 E. Guasti Road, Suite 700
Ontario California 9176
Tel: +1 (909) 952-3804