I’ve got a great idea for a business. How do I get started? Part 2
This is Part Two in our discussion of How to Start a Small Business. In our first installment, we covered business plans, corporate structure, business licenses and permits, Tax ID numbers, and business location. In this installment we’ll get into the nitty gritty of operating a business.
If you run a small business, it’s not uncommon to find yourself not knowing where to begin with accounting basics. You’re in charge of making sure your books are in order, but if you’re like most small business owners, your bookkeeping practices are almost non-existent. The only place you keep track of your company’s spending and revenue is your bank account.
One reason small businesses struggle is because the miscalculate expenses and taxes. Some companies spend money they don’t really have; others miss tax payments; still others lose out on tax refunds. Quality bookkeeping is important to the longevity of your business. No matter how strong your products and services, accurate accounting basics can make or break your business. Let me help you get a handle on some of accounting basics.
The simplest place to start your bookkeeping is what’s known as cash basis accounting. This is a very simple, very basic accounting – cash in, cash out. Record when you get paid for a sale. Record when you spend. Record it on the day it happens, when it happens. Most business use this type of accounting method.
What do you need to record? The more detailed your records, the better. It is important to keep track of all incoming and outgoing payments. Track what you sold; who you sold it to; how much you collected; when you received the money; and how much, if any, sales tax you collected. Track the taxes you paid; employees you paid; the business expenses (office supplies, inventory, etc.) you paid; the rent/utilities you paid.
As a small business owner, it’s important to keep track of every dollar that goes in or out of your company. This includes, not only what you see on a day-to-day basis, but also your monthly expenses. Many of the payments you’ve made may be deductible based on your income or the type of business you own. You may even deduct coffee with a potential partner or the health insurance you purchased.
Some of your revenue may not be revenue at all, like in the case of sales tax. By clumping all your incoming cash together into one account without proper records, you may have trouble separating what is tax that belongs to the government, and what is cash that belongs to you.
If you invoice your customers, you’ll want to track how much is owed to you, and who owes it. You might also want to know what vendors you owe and how much. In cash-basis accounting, you don’t record these transactions until the money changes hands, but it helps with budgeting to know what items are outstanding.
At some undefined point in the growth of your company, you’ll realize that it has become more than one person can handle. Or perhaps, your business is such that you know you’ll need to hire employees from the very beginning. Either way, you’re ready to begin hiring employees. I highly recommend that you outsource your payroll. There are a variety of companies that can help you. If you’re using an accounting software, like QuickBooks, Sage, or Xero, they all have payroll add-ons to their services. A stand-alone payroll software company is Patriot Software and there are others out there. All of these offer Direct Deposit, but they are not PEOs (Professional Employer Organization) so they don’t offer any benefits that you can pass on to your employees. Patriot has an employee portal where employees can log on to review their pay history or print their W-2. For you, the important question is whether you want them to handle depositing and filing your federal, state, and local taxes; or if you would rather handle it yourself. It costs a little more, but if you have no experience in handling payroll, it could be worth the money to ensure you stay compliant with all tax deadlines.
Lastly, if business is getting hectic, but you’re not sure you’re ready to hire full time employees, consider outsourcing some of your business tasks to a freelancer. You can try it on a small gig basis and if the person(s) turns out to be someone you enjoy working with, see if they would consider working out a more permanent arrangement. Temp companies have been around for years, and they are a great way to try-before-you-buy. But, in recent years several online options have become available. If you need assistance with office work, but don’t have an office and office equipment for an additional employee, maybe a virtual assistant would work for you. Perhaps you need help to design your company logo, or build your website. These are perfect jobs for freelancers. If you’re unsure what jobs a freelancer could fill, check out some of the websites listed below and see what positions other companies are hiring. Don’t forget, we’re always here if you have questions, or if we can be of assistance in getting your business idea off the ground.
Until next time.
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