When you’re starting a business, there are a lot of things to think about-and bookkeeping shouldn’t be one of them. But the fact is, if your business has any income at all, you’re going to need to keep track of it in order to file your taxes correctly. This can be especially difficult if you’re not yet generating revenue. In this blog post, we’ll discuss the importance of bookkeeping for businesses in pre-revenue stages, and offer some tips on how to get started.
The first and most important reason to keep good books is because it will make filing your taxes much easier. If you have a clean set of books, your accountant will be able to prepare your tax return quickly and with minimal hassle. But if your books are a mess, it could lead to an audit. And no one wants that.
Another good reason to keep track of your finances is that it can help you save money on taxes. If you’re spending money on office supplies, furniture, software, or rent for your business, those expenses may be tax-deductible. But in order to deduct them, you need proof of the purchase. So by keeping good records of your spending, you’ll be able to take advantage of those deductions come tax time.
If you are keeping good books, it forces you to think like a bank or an investor. If you go to a bank for a small business loan, or meet with an investor for financing, one of the first things they will do is look at your books. If those books are an unorganized mess until the last minute might mean you won’t be able to review them yourself. By getting this head start, you can catch any red flags early and minimize the things that a loan officer might consider problematic.
Along the same lines as thinking like a bank, orderly books also assist you in building good financial habits. With the right data, you can start doing things like budgeting, bank account reconciliations, and separating business and personal expenses. These are all things you need to be doing regularly for a healthy cash flow and business growth.
How do you start setting up your books? There are a number of accounting software out there. Some of them are free and some of them cost money. If you would prefer something more manual, you can start keeping track of your books through Microsoft Excel using any number of the templates that are on the internet.
Secondly, you need to start categorizing your transaction. Every time you record a transaction, you will have to put it into a category using a chart of accounts. You can discover a basic chart of accounts online for the type of business you are starting. All your line items need to fit into a category to assist in preparation of your tax return.
You need to keep track of your receipts and invoices. The IRS requires you to maintain records for any expenses you claim. Scan your receipts to keep them electronically and save space that would be needed to store all of your receipts. Some accounting software allows you to upload receipts also.
Now that you are tracking your revenue and expenses, you need to reconcile your bank accounts monthly. This is the first line of defense against mistakes and catching overpayments, underpayments or any bank errors, or fraud.
So if you’re starting a business, make bookkeeping a priority from day one. It may not be the most exciting task, but it’s an important one. And with these tips, you can make it a little easier on yourself. Before you know it, you’ll be a pro at keeping your books in order. And your accountant will thank you for it. If all of this seems overwhelming, you can use a bookkeeping service like FOM Services. We work with your business to categorize your transactions, reconcile your bank account, and keep a clean set of books for you so you can focus on your business. Once the revenue starts increasing, we will move to assist in any way we can.
Get in touch with us today to start laying the foundation for the future growth of your company.