Starting a business can seem like a daunting task but Americans make the jump into entrepreneurship every day. Once you’ve chosen your business type, your business name, and filed all the required documents, you are ready to start working and making money. However, as your business grows, you begin to think: how do I keep track of everything, how do I store my documents, and shouldn’t I be using some type of software or database for this? Some business owners may decide to hire an accountant to handle everything, while others may decide to handle it themselves. Either option is viable and there are resources and help out there when needed. Below are some best practices you can implement when starting a business.
When running a business, you’ll want to have a checking account to pay bills and a credit card to make purchases. You may even want to have a savings account or a merchant services account. A merchant services account allows you to accept credit and debit card transactions from customers.
Business accounts offer limited personal liability protection by keeping funds separate between business and personal. Merchant services also offer purchase protection for customers and ensure their personal information is secure. It also provides professionalism on behalf of the business for the customers to write checks out to a business and not to an individual.
Credit Card accounts help businesses make start up purchases and help establish credit history for future lending needs. To open a business account, you need your Employer Identification Number (EIN), or Social Security Number if you are a sole proprietorship, the business’s formation documents, ownership agreements, and the business license.
Reconciling and Month End Process
Reconciling is an accounting process that is used to prove that the transactions recorded are consistent. Accounts such as bank accounts and loans are normally the ones you would want to reconcile. Most receive a bank or loan statement at the end of each month that should be used to tie the ending balance to the ending balance on the business records. Reconciliations can help find discrepancies and isolate issues, including financial missteps or theft.
Once reconciliation is complete the next task is a list of month end close items. This is a collection of financial accounting information to tie the monthly balances to. The most important closing periods are year-end or fiscal year-end. A monthly end close process helps keep accurate records throughout the year, providing an opportunity to review transactions, and reports on a more regular basis. You match the income and expenses to the physical records by checking receipts, invoices, and other key financial documents. The benefits of a month-end accounting close are it helps you to easily display your financial information and keeps your records up to date in the event of an audit. Also, it helps to prevent future accounting mistakes and prepares you for a simpler and easier tax filing.
While there are many different types of databases out there to use for recording business activities, the easiest and most widely known and used is QuickBooks. Not only do you have the option between an online format or desktop format, but there are also different types of each software.
QuickBooks Desktop is a physical copy that is downloaded and paid for with an annual one-time fee. This is stored on your computer’s desktop. We recommend updating every three years to ensure retention of files. Payroll should be updated annually. Additionally, there are both a Premier Plus and Enterprise version available offering more robust customer and vendor lists and options which can be found using the links provided.
QuickBooks Online is a cloud-based monthly subscription. There is a Self-Employed version that is best for small service business owners with no employees. Simple Start is best for small business owners with employees who also issue invoices. Essentials is utilized most often for small businesses with a need to assign hours worked to customers, track bills, and provide access for up to three users. Plus is available for retailers, wholesalers, contractors, and offers access for up to five users. And the most robust offering, Advanced, is ideal for growing small businesses who seek more detailed reporting with custom user permissions, a dedicated support manager, and access for up to 25 users.
Record and Documentation Storage
Every day businesses use multiple types of documents. This can range from receipts and checks to statements and business formation forms. A good key practice is to keep all documents throughout the year filed in a safe place since for easy reference and use as tax support. If you store these documents in a physical form, it is recommended to use a fireproof container. Electronic document management systems are also acceptable where all the documents are scanned in and saved in readable pdfs. The key is to ensure they are backed up regularly for future access. The current suggested retention for most items is 7 years.
McKonly & Asbury has an Entrepreneurial Support & Client Accounting Segment specifically geared to help new business owners navigate the requirements and help establish best practices that work for your business. Our team has experience assisting new business owners with all their accounting needs going forward, from monthly close to yearly tax return preparation and more.
If you would like to talk to one of our professionals in our Entrepreneurial Support & Client Accounting Segment on this topic or any other business-related topic, please do not hesitate to contact us.