Bookkeeping for Startups: What New Business Owners Need to Know in Their First Year

Launching a business is very thrilling. You get a new idea, new customers, and lots of ideas for the future. At the same time, it's very easy that the bookkeeping aspect is a big factor you'll never consider while you're setting up your business.

Bookkeeping is basically the activity of keeping and organizing your business accounts. It reveals to you the amount of money coming in from different sources, the areas into which your money is going, and if you are really earning a profit in the end or not.

For a first-time business owner, it is very useful to have proper bookkeeping for the first business year because it helps in the timely filing of taxes, offers guidance for making more sound financial decisions, and it builds a solid footing from where the business can continue to grow.

Why Bookkeeping Matters in the First Year

Many financial transactions in your first year. You might make such transactions as buying equipment, getting software, getting money from customers, paying for advertising, and hiring new employees or contractors.

Not having proper documentation can make understanding your financial health quite a challenge. Proper documentation allows you to watch the business's performance, create financial statements, keep track of expenses that you can deduct, and get ready for your tax return.

Bookkeeping is more than record-keeping receipts only. It helps you see, in a better way, how your business is doing.

1. Keep Business and Personal Finances Separate

One of the very first decisions business owners should make before even launching their business is to open two different checking accounts: one for family/personal transactions and the other for the company. In fact, one of the best things that small business owners can do is to create a business bank account where all the money received from customers and paid for the expenses of the company will be placed.

Never mix family finances with business finances nor charge a personal bill at expense of the business. Separating accounts will keep the accounting process simple for you or your accountant and allow you to quickly and conveniently recognize all of your business expenses and revenues. And, the IRS is supportive of small business owners and encourages using a separate bank account and business credit/debit card for business purposes.

2. Track Every Source of Income

Make it a point of view that you need not see your balance only to know your real cash flow.

Keep track of your income from customer payments, online sales, service charges, deposits, and any other business income. Maintain your invoices and payment records systematically if you wish to keep track of where every bit of income came from.

This gets really crucial if a business starts getting payments through multiple channels, for example, by credit card, bank transfer, check, or payment platform.

3. Record Your Business Expenses

Small expenses can quickly add up during your first year.

Common startup and operating expenses may include:

• Office supplies

• Business software

• Advertising and marketing

• Professional services

• Equipment

• Business insurance

• Rent or workspace expenses

• Website and technology costs

• Employee or contractor payments

• Business travel

Record expenses as they happen instead of trying to remember them months later. Keep receipts, invoices, statements, and other supporting documents. These records can help support expenses reported on your tax return.

4. Choose a Bookkeeping System

Setting up a basic accounting system is probably all you need when you just started the business. Still, it is essential that you have a method that keeps a clear check of your income and expenses. A good practice is to have your income and expenses recorded that is easy for you to understand and that ensures the accuracy of the recordkeeping.

Many small businesses rely on accounting programs like QuickBooks to log in the sales invoices, purchases, expenses, and even financial statements for analysis. In other cases, people hire professional bookkeepers to take the burden of bookkeeping off of them and have it done regularly by the bookkeeper.

No matter which method you take to manage your finances, the most important thing is to keep up the regularity. In order for you to be able to have a good grip on and understand your money movements, the system you choose has to be the most user-friendly and efficient for keeping records.

5. Reconcile Your Bank Accounts Regularly

Bank reconciliation is an activity in which a company's own records of financial transactions are contrasted with those of the bank.

Possible situations: you have made a payment which still hasn't reached your bank account. You have made bank charges but have not included it in your account books.

Having your books checked at intervals will help you spot any errors and maintain correct accounting records.

Your company should make bank reconciliation at least every month as a fundamental habit, mostly if it's a startup. In case your business generates a high volume of transactions you might want to carry out more frequent checks as it may help you get better insight into your financial position.

6. Understand Your Profit and Cash Flow

Money in the bank alone is not a guarantee that your business is a success.

A business may make sales but still be short of cash because of unpaid invoices, loan repayments, big purchases or other expenditure.

Good accounting records should allow you to know not only your profit but also your cash flow.

A profit and loss account is a great tool that can show the amount of the revenue earned, the number of spending and how much you will be left over at the end of an accounting period either profit or loss. A balance sheet will give you the list of the assets you have, the amounts you owe your lenders, and your net wealth.

Going through these documents at regular intervals can provide a deeper understanding of what is happening in your business.

7. Prepare for Taxes Throughout the Year

This method could bring stress and anxiety at the tax season.

Per the type of your business, the amount and variety of your income expense, number of employees and many other factors, the federal tax burden will change. The best way for a new business owner is to know what taxes he/she has already from the beginning and keep proper records all year round.

Better bookkeeping is also a big advantage when hiring a tax professional. An expert can save their time for your tax return if he/she has well-arranged and clear records.

There is no need for the last minute chaos to reconstruct your expenses, find lost receipts, and so on. Simply give well-prepared and neat documents with a lot of information.

8. Keep Important Documents Organized

Design a straightforward system to store financial documents.

Maintain copies of all your invoices receipts bank statements, payment records, bills, and payroll information as well as any other crucial documents. Using digital folders can make managing these files more convenient,

Based on the IRS, documents that you keep are essential for you to make sure that the records in your books and tax return are accurate,

Your records should be kept in a safe location and have a backup copy.

9. Consider Professional Bookkeeping Help

With your business increasing, bookkeeping may require more of your time.

If you're devoting significant time to the inputting of transactions only to find mistakes after that, chasing up invoices, or doing financial reports, it is probably time to consult a professional bookkeeping expert.

The role of the bookkeeper is to ensure that your records are kept well organized and current, so that your CPA or tax professional can, using those records, make tax-related forecasts, advise you on tax planning, and assist you in maintaining tax compliance.

And, engaging professional support at an early stage is a safeguard against small bookkeeping errors developing into major issues.

Build Good Bookkeeping Habits From Day One

The early success of your business plays a huge role in what's to come ahead. Bookkeeping, while far from the best part of a day in entrepreneur life, is among the biggest habits you'll be proud to have if your future business goes down the right track.

Possibly the most important thing when starting up a business is the separation of the business finances and personal finances. The practice that will keep you in good shape is regular recording of income and expenses, archiving important documents, balancing accounts against records, and reviewing financial statements. Most importantly, don't wait until tax time to deal with bookkeeping.

Dealing with your business records can sometimes be a heavy job and you might not get motivated to do it solo. The Bookkeeper Marketplace is here to give a helping hand by linking business people to bookkeeping experts who can manage and keep their records in order and current. Proper bookkeeping services will give you a clear picture of your business situation, decrease anxiety, and provide you time for concentrating on how to scale your business.

Start your business finances right by connecting with a bookkeeper from Bookkeeper Marketplace. It's time to make a change from working on the business to working the business to get the most out of it, right away.