When you finally decide to make your new business official, sometimes you don’t yet have the funds to hire a bookkeeper/accountant to show you all the ropes for how to keep your business compliant and out of trouble with the IRS.
That’s why we’ve put together this short (and to the point) list of four simple ways to start your small business off right!
Here are our TOP suggestions for your startup to implement right away in order to save you time and hassle down the road.
Economic Entity Assumption
This may already sound complicated, but it’s not! All this means is that you need to start keeping your personal transactions separate from your business transactions. This is VERY important if you were ever to be audited by the IRS. If the IRS cannot tell the difference between what was personal vs. business, you can be hit with heavy fines if claims were made on your taxes that were illegitimate for your business expenses/income.
One of the first things you should do as a new business is to set up a checking account under your business. A savings account is also recommended, but a checking account will suffice to start.
Once your business checking account is set, be sure that ALL of your business income and expenses are coming into and out of your business checking account, NOT to/from a personal account!
Pay Yourself the Right Way!
To take money out of your business for yourself, transfer funds directly from your business checking account to your personal account. When you do this, add a memo indicating the transfer was an owner’s distribution. As a startup, this is the best way to pay personal expenses from money you earned via business activities. It is best practice to never use your business card for personal expenses.
Keep Business Transaction Records
If you can’t afford something like QuickBooks Online or another bookkeeping software, then use an Excel File or even Google Sheets to record details on income and expenses. Label these transactions with columns for item name, description, amount, client/vendor, and the date the money was earned, or expense incurred.
Remember: Google Sheets is not a secure file storage center for sensitive documentation. If you use it to record transactions, just be sure not to include sensitive information such as account numbers, PINs, etc.
Stay Tax Compliant
As a VERY general rule, if your income is more than your expenses for any given quarter, you might want to check to see if any Federal, State, or Local estimated taxes are due. If you earn enough and do not remit estimated taxes each quarter, you could end up paying a penalty at the end of the year. Additionally, depending on your business entity, you may still have to report to the IRS and state even if no money was made. Having a massive tax bill along with penalties at the end of the year is not ideal for a small business just getting started. Don’t wait until tax season rolls around to seek guidance for estimated business taxes.
While these are some great ways to get your business started on the right foot and keep yourself out of any major financial turmoil, we still highly recommend seeking the help of BOTH a financial and tax professional once your business has the means to do so.
If you liked this article and realize you need additional assistance with your business’s bookkeeping, please reach out to Kristina at Kristina.firstname.lastname@example.org or schedule a free consultation here: Contact – Legit Ledgers, LLC. (legitledgersllc.com).