Updated: Dec 1, 2019
Starting a business is exciting - but you want to do it right to avoid mismanagement of finances and legal or tax penalties. After you review the steps below, check out my resources page for media and literary books that I have found helpful for business management.
1. Create a Separate Bank Account
Whether you’ve just stared selling a few items on eBay or you are earning six-figures via a Shopify online store - the earnings from your business should be saved in a separate bank account. Why? Well, not only is it professional, it allows for clean bookkeeping and record keeping. Clean books will also ease the tax preparation process by
Clearly identifying business expenses,
Providing statements to validate the activity is a business instead of a hobby
Leaving a clear audit trail for the IRS in the case of a tax return audit, and
Helping the tax prepare retrieve accurate financial information.
2. Track Your Inventory
If you have an online business, inventory management can make or break your business. If you do not track inventory, you risk overselling items that are out of stock, under selling items that are in stock, and missing out on potential tax benefits on inventory items, specifically related to depreciation. The most efficient tracking method is via software - Ecomdash, QuickBooks and Box Storm Inventory are just a few examples of available software to help manage inventory
3. Create a Budget
To control spending and efficiently manage resources, a business should have a budget. The type of budget you create depends on the long term goals and needs of your business. In general, the budget should estimate income, fixed and variable costs.
A plethora of budget methods exists to help guide your financial operations. For instance, you can create a zero-based budget which assumes all resources need to be generated from scratch, a cash flow budget that helps you determine the amount of funds needed to meet a specified target, or an incremental budget which bases the current year budget off of a percentage of the prior year's figures. The internet has an endless amount of resources on budgeting, you have to find and learn how to create one that works best for your organization.
4. Seek a Legal and Accounting Professional
As your business grows, you will to want to consult legal and accounting help for compliance with state, federal, and other tax laws. A legal professional will help you organize your business in a way that makes most sense for purposes of asset protection and reporting. An accountant will help you organize finances in a way that allows for operations that are scalable, traceable and tax efficient.
For more business financial tips, contact The Little CPA.