The norm for me when I encounter a new or potential client is financial chaos. When someone starts a business, many times, they have no idea what it’s potential is. My normal questions include the items purchased including dates, amounts, etc; licensing or other government fees paid; if and when a business bank account was begun; and the list goes on.
In this article, I plan to give you some tips of things to do in the start-up of your business or organization pertaining to your accounting. This coincides with my previous article “What to have when hiring a new Accountant.” Be sure to take these steps and you will be much more prepared when trying to put your books together in a way that will give you the most information and use possible.
Choose the right form for your business. See my previous article “How Should I Form my New Business” for advice on this subject. Be sure to think it through well because this decision can affect you in many ways.
Keep ALL receipts. BUT, just to keep them is not enough. If you are like most, the receipts can go back over a year and if you bought the item at say, Wal-Mart, then you probably have no idea what you purchased or what it was for. On the receipt or paper attached to it write what the item was, it’s use, the purchase date, and any other helpful information. The additional information might include whether it was a marketing purchase, an item for resale, etc. For example, a purchase of a DVD player might not look like a business purchase for a hair-stylist, but if you used it for a give-a-way prize at a marketing function, it absolutely is. Your accountant needs to know where to book that expense and this helps not only your accountant but you in the end when you look at where your marketing dollars went and if they helped you as much as you wanted.
Open a Business Bank Account. This helps keep track of your business cash flow. Most new small business owners have to make use of their personal cash to help with the company cash flow. Paying company bills, making company purchases, etc using your own personal account is fine, but you have to keep good records to be sure there are not problems in the future determining personal income, expenses, and assets from business. If you want to put money into your company, make deposits into the account and note that they are loans or reimbursement owed liabilities to be returned to you later. This makes everything very clear and easy to follow.
Do NOT throw bank statements away. It is always a good rule of thumb to keep all your bank statements for 3-5 years. You never know when you will need to go back and review the information in those statements.
Reconcile your bank statements. Just like you SHOULD be balancing your checkbook every month, you should “reconcile” or “balance” your business accounts as well. You should always be aware of the in’s and out’s of your company’s cash and holdings.
Keep up with all income and expenses. Be sure to track the income and expenses of your company. If you don’t keep track of this information, how can you know how your company is really doing? Many new small business owners go with the idea “If I have cash in the bank, I’m good.” This is not the case at all. You have items that depreciate over time. Are you taking replacement of these items into account? If you are like most, you are contributing cash flow to your company. If you don’t track your “income” from customers or clients, how can you know your profit margin over the expenses you have paid out?
You want your financials “Accounting Information” to tell a story. If you don’t keep these simple steps in place, they will not tell you much or they will tell you a broken story. In the end your financial statements should be able to tell you where you have been, what you have now, where you can go, and what you should and shouldn’t do in the future.
I stress again how important it is to hire an accountant either in-house or out-sourced. This person should have experience and you should feel comfortable with them. You need their expertise to truly be able to use your financials to their fullest. I hope this all helps you in your new endeavor and good luck!
Source by Mindy Viteri