Bookkeeping Basics for New Business Owners
If you are a new business owner or thinking about starting your own business, you are going to need a great many skills above and beyond the work you do each day. Running a business requires maintaining business finances and transactions on a daily, weekly, monthly and annual schedule. It’s no wonder that bookkeeping is so challenging for most business owners: they are not accountants and it’s not what they got into their business to do. However, without a basic understanding of business transactions and bookkeeping, new business owners spend money they do not have, miss tax payments, and may lose out on benefits and opportunities for which they should qualify.
First, don’t feel bad about not being an accountant. Few business owners are. Let’s start with a few great ideas that you should be able to implement without too much effort that will establish some good bookkeeping practices your business can build on.
Tip #1: Use a Cash Basis Account System (at first)
Start simple – cash in, cash out. This is a great way for first time business owners to track their business transactions. Record every transaction where money changes hands. So, record when you make sales and also record every time you pay out money. Make sure to include information like the date and business purpose in your records.
Tip #2: Only Record What You Need
One common mistake first-time business owners make with their bookkeeping is trying to record so much information that their system becomes over complex and a hassle to use. If this happens, you may be tempted to stop using your system. So, save yourself time and keep your business on track by only recording the information you need about each transaction.
What to Include with Outgoing Payments
• The taxes you pay
• All employee paychecks
• Any operating expenses (this includes inventory, supplies, etc.)
• All overhead expenses (this includes insurance, utilities, rent, etc.)
What to Include with Incoming Payments
• Who paid you
• The product or service sold
• The price paid
• The date payment was received
• Any sales tax collected
There are many software and accounting tools that can be beneficial to keeping track of and itemizing all payments and receipts. Make sure you use a system that is understandable. It should be sophisticated enough to interface with your tax and accounting advisors but not so complicated that it is not easy to keep up with, interferes with the conduct of your business or is frustrating to use.
Tip #3: Track Every Dollar that Comes In, or Goes Out
One of the key reasons to track every dollar is that it will help you be eligible to claim appropriate business tax deductions. Besides, tracking every dollar helps you to properly budget and plan for necessary expenses.
Depending on your business, not all incoming money may be sales revenue. A percentage may be sales tax, so you’ll need to separate things like this out. Unless you have a record of all the money coming in (including tax), doing so will be difficult.
These are just a few basic tips to get the ball rolling for you with your business transaction bookkeeping. If you have any additional questions or other related legal issues you’d like to discuss with a qualified and experienced small business attorney in North Texas, call Stephen Rizzieri at 214.434.1017 or fill out the form on our site today.