If you own a business or are planning to start a small business, these are the essential practices to ensure that you are financially responsible. These steps will set your business up for success.
1. Obtain an EIN number:
An EIN number is essentially a social security number for your business. By obtaining an EIN number, you are creating a level of separation between you personally and your business. You will need to provide your EIN number to others as you do business. This way, you are protecting your Social Security number and preventing identity theft.You can contact a professional to help you, or if you are comfortable, you can set this up by navigating the IRS website.
2. Open a bank account in the business name
Open a business bank account. Deposit all your income into this account and pay for all of your expenses from the business bank account. This will ensure that your bookkeeping is simple and accurate. It legitimizes your business. It captures your income and expenses for tracking profitability and preparing for taxes.
3. Form relationships with professionals
Every small business should have relationships with professionals who will help ensure the success of the business. These relationships include: lawyer, CPA, bookkeeper and insurance agent at the very least. You will likely also need an IT specialist and a banker. Forming these relationships and hiring the right professionals will foster the growth and success of your business.
4. Do your books
We cannot stress that you must have a bookkeeping system in place. You need to do your books yourself in a timely and accurate manner OR outsource your bookkeeping. This is the core measure of the financial stability of your business. It will help you make decisions about your company. Without an accurate set of books, you cannot file taxes, cannot obtain business financing, and you cannot make informed decisions about your business. We recommend that you use a professional. You might want to do this yourself as a business owner and you might have the skills to do so. As a business owner, you will wear many hats, you will be pulled in a lot of directions and books tend to be put to the bottom of your to do list. Outsourcing them is a great option.
5. Pay your estimated taxes/payroll taxes
Stay on the good side of the IRS by paying your taxes. Keep yourself out of trouble with the IRS and prevent yourself from needing to come up with a lump sum when you file your taxes. It is difficult. We get it. Cash flow is an issue and paying taxes is the last thing anyone wants to do. But you won’t do yourself any favors by skipping these payments. You will need an accurate set of books to determine how much to pay on a quarterly basis.
6. Track your profit
You may have started your business because you have a hobby that you’ve turned into a business. But to stay in business, you must be profitable. Track your profitability by having a bookkeeping process in place and operating.
7. Keep your receipts
You must keep your receipts. Many business owners believe that your bank/credit card statement is sufficient. It is not. If you are audited, the IRS will want to see actual receipts or electronic copies of receipts. We recommend that you store receipts electronically.
Follow these practices to help ensure the financial health of your small business. Bookkeeping and Financial Service Providers such as Incline Business Essentials can help you with these steps.