Accounting Tips for Start-ups and Young Companies – Part 1

We’re asked for accounting-related advice by business owners for their start-up or young company.  We have six recommendations.  Here are the first three and we’ll describe three more in our next post.

1.  Open and use a dedicated business checking account.  Open a separate checking account in the business name, and pay all your business expenses from this account and minimal (or even better, none) of your
personal expenses from this account.  This helps in establishing and maintaining the discipline of keeping your business and personal affairs separate.  This discipline will make the preparation of financial reports and business tax returns much more straightforward.  And if you ignore the advice below to buy and use accounting software such as QuickBooks, you can at least dump a year’s  business checking account statements on your bookkeeper or tax preparer and they can use the statements for tax return preparation.

2.  Use a dedicated credit card for business purposes.  Either open a new credit card account or take an existing credit card and use it exclusively for business.  This assumes you can manage the card appropriately and pay it off each month.  Assuming so, the card provides a convenient way to make and have documentation for small purchases.  And as with the checking account above, using a dedicated card will either assist your bookkeeper with financial report preparation or a year’s statements can be used for tax preparation at year-end.

3.  Buy and use accounting software such as QuickBooks.  We use and recommend QuickBooks because it is the dominant small business accounting package — so you’ll be able to easily hire bookkeepers with experience using it and your tax preparer will be familiar with the program and can often just take your QuickBooks file at year end,
simplifying the process considerably.  But there are also many other good options such as the cloud-based FreshBooks.  Regardless of what you select, the point is to select and use something.  There are countless reasons, but here are just three:  you can improve your cash flow by more closely tracking your accounts receivable, you can reduce your taxes because you’ll be less likely to forget expenses or be affected by lost receipts if you regularly record expenses in your accounting software, and you will improve your ability to get a business loan by appearing more professional to bankers due to the reports you can print from your accounting software.

See our next post for the remaining three recommendations.

(originally published September 12, 2013)