Here are the top 10 accounting tips that every new entrepreneur should know before beginning their business. Whether you have just opened the online store after years of preparation or you have jumped into wearing the entrepreneur hat, this is a must-read. These accounting steps will help you get started with a sense of confidence and help you anticipate what you must know when tax season arrives:
Open a Bank Account
This should be the first step of ‘accounts’ in your startup’s life. Creating a bank account to keep all finances separate will make tax time a lot easier. Big companies, including corporations, LLCs and partnerships, are legally required to have a separate bank account while it is not compulsory for sole proprietors. However, experts recommend all businesses have a separate checking account.
Apart from the business checking account, it would be best if you also considered opening a savings account to help you keep track of profits and plan for tax season. Getting a business credit card can also be a good idea even if your business is only a small one. Remember that business checking accounts usually have fees that are higher than personal savings accounts, knowing what to expect and looking around can help you find a good bank. After you have decided a bank which works best for your company’s needs to find out the documents you will need to bring in to open the account.
Tracking your expenses
One of the main things that every business must do is to track all expenses. Not only does tracking expenses help you monitor your spending pattern, but it also helps you analyze the growth of your business.
Keeping all financial expenses recorded is not hard anymore, use a tool built especially for this, such as online software and save all physical receipts. There are different types of receipts and the saving receipts for food and entertainment-related expenses, travel expenses, vehicle expenses, business gifts, and any expenses in the home office. If you are running your business from home, then you could deduct expenses like internet payments, telephone bills, and stationery supplies.
Have a Bookkeeping system
Bookkeeping doesn’t refer to only tracking expenses. It is a process which records all transactions made by the business and categorizing them. It is easy for a new entrepreneur to get overwhelmed by bookkeeping, but it can become a routine activity after you have determined your method. You could use a simple method like an excel spreadsheet or hire a part-time bookkeeper after your business grows, you could hire a full-time person to perform bookkeeping activities.
Have a payroll system
Even if you are the only person your business employs, you still need a payroll system. You may find yourself occasionally making payments such as for freelancers or part-time employees. When you employ someone for a job relating to the business immediately decide whether they are a freelance contractor or an employee of the company. If you have employees, it is essential to withhold taxes and deal with other payroll-related details. Hiring a freelance employee may be easier as you only need to file a document at the end of the tax year.
Knowing all about taxes and duties that relate to your business
If you intend to import goods from other countries, then knowing about import taxes and duties is essential. Similarly knowing all rules that govern the import of the said goods is also important, so you don’t inadvertently break any rules. Depending on which country you are doing business with, research their taxation policies and local area fees that you may have to pay.
How are customers going to pay you?
Decide if you are going to set up a merchant account or a payment getaway. You could even consider using a shopping portal payment helper to simplify the process or use a service like PayPal. Remember that customers prefer to use safe payment methods and could base their buying decisions on this. Payment processors usually charge a service fee.
Know about sales tax
Sales tax rules can be confusing for online shops since you can sell across provinces and even to different countries. However, it is essential to know all about the rules that govern taxes in your province. Canadian stores should collect GST/HST only when revenues are higher than $30,000 a year. If you are shipping goods to other countries, then you don’t need to charge GST/HST.
A small self-employed proprietor can claim business income on their personal tax return. However, bigger companies are tax entities which are taxed separately. Employees income is taxed differently, too. If you are self-employed, then you should withhold taxes from your income and pay these to the government like how an employer would. Income tax can be paid in instalment in Canada if the net tax owned is above $3000.
Margins determine the success of any business. Improving the margin of your company means you can earn better. Gross margin is basically the sales revenue that is calculated after incurring all direct costs. Your company can stay afloat only if you are focused on your gross margins. Having control over gross margins is very important in the long run for the health of the company.
Be prepared to grow
Businesses can grow fast. Use new and more advanced ways to do businesses to help your startup grow faster. As your startup grows, assess the methods of accounting, you are using and be ready to implement new methods and hire new people.