You have a great business idea, and you’re lining up the resources to make it a reality. But if you don’t establish solid corporate and accounting strategies from the start, you could be putting your business in peril before you ever get off the ground. Follow these four steps to get off on the proper financial foot.
Be thoughtful before organizing
Understanding whether to operate as a sole proprietor, partnership, or Corporation has tax implications, and each offers different levels of liability protection for companies. And if you incorporate, you can’t change back to an LLC later, so it’s important to know the best structure for your business.
Budget and track expenses
Playing fast and loose with the chequebook can get you in trouble in a few ways. First, it can mess with your cash flow, which is the reason many businesses fail. Also, when you lose track of what you’re spending, you could be missing out on valuable deductions for your business.
Use technology to your advantage
Tame the paper tiger and keep your finances more organized by using a good accounting program like QuickBooks. You’ll have less financial organizing to do at tax time, and you’ll likely reduce accounting fees if you’re able to hand over a digital file to your tax accountant. Also, consider using apps that can help you organize receipts, log mileage and track spending when you’re in the office or on the road.
Establish good bookkeeping practices
One of the biggest mistakes entrepreneurs make is ignoring their financial management at the start, either because they are overwhelmed or they think their business is too small to warrant formal bookkeeping practices. However, the sooner you’re able to establish good practices, the less likely you’ll be to rack up penalties, interest, late fees and other unnecessary expenses.
Open a separate business bank account
If you’re self-employed, it is very easy to use your personal bank account to pay your business bills and deposit your takings. However, when you do this, you create a complicated mix of personal and business transactions that, over the course of a financial year, will become very hard to separate. At the end of the year, when it is time to prepare your accounts, working out which transactions are personal and which are business can become a challenging and long-winded process. To prevent this from happening, you should open a business bank account so that your business transactions are kept completely separate.
By Damilola Faustino