As a new business owner, you have to wear so many hats and manage various functions of your business. One such function is bookkeeping. By following a healthy practice of regularly recording and storing relevant records for valid business purchases, you will find it lot easier to get a line of credit from a bank or raise capital for your business in subsequent years.

With the introduction of Cloud-based accounting software like Quick books & Xero, most business owners assume the software takes care of all the tasks. They are often surprised at the time of tax filing that they either are not aware of bank reconciliations or did not know that the expensive computer equipment can get them tax depreciation. Therefore, after you start your business, we always recommend the following :

a) Register for a new business owner session with your tax Accountant who will help you understand the compliance and accounting requirements.

b) Understand your compliance requirements all through the year. As a new business owner, you are fully responsible to pay and file your taxes along with any reports on time.

 

Following are the 6 important best practices to set up this upcoming new financial year for your business which you may find useful.

 

1. Monthly bank reconciliations: As part of your monthly reconciliation process, this should be one of the most important reconciliations for your business. In simple terms, this is reconciling your internal company books bank balance to the balance shown by the bank. While it may seem very simple, 9 out of 10 times you will certainly notice few charges which are appearing in one and not appearing in another. The purpose of bank reconciliation is to identify items that may be resulting in differences are e.g.: You issued a check on 31st of January but it only cleared the bank on 2nd As you can see the January balance in your books will show lesser than the bank balance in January. Same with February, the bank balance in your books will show higher than the bank balance as per bank records. A well-setup accounting service will ensure this report is accurately completed each month.
2. Record keeping:  A well setup record keeping system ensures you are able to track receipts correctly. It can be as simple as establishing a dedicated email account each month and sending your receipt copies with the business purpose in the subject line. While a detailed report outlined in a business receipts log is always helpful, this may also be relatively easy way for record keeping for a startup business.  As your business grows and scales, you should subscribe to an expense tracking software or establish workflows for your employees and their supervisors to track & approve expenses.This ensures you have an audit trail.
3. Categorizing expenses and income & why is it is important: The easiest way to set up your books is set up similar as your tax categories. This will not only be easy to prepare the tax returns, but also a good way to compare the book & tax differences. In addition, expenses are further classified as selling, general & administrative expenses called SGA and cost of goods sold or service. Costs of goods sold/service are directly linked to your sales e.g.: contractor costs for information technology companies, direct overhead.  Similarly, income needs to be classified correctly as subscription revenue, consulting revenue or revenue from any tangible product sale.  By tracking expenses and revenue itemized, you will be able to better manage your company financials.
4. Keeping personal and business expenses separate Always a good practice to keep your business separate from a personal account. This will not only save you money that you would otherwise spend on tuning up your books but also save you lot of time and effort having to explain your accountant.
5. Monthly financial reports:  Generating a monthly financial statement package Profit and loss account, balance sheet and cash flow statement will ensure you have an understanding of your business. Various reports like these are now readily available on the cloud-based accounting software real time. So, ensure your accounting software also has few other reports like monthly financial forecasts, budgets comparison to actual. Any variations can then be understood for the next quarterly forecasts.
6. Keeping track of your asset purchases: This is the final step. One of the last steps in getting your books ready would be tracking all asset purchases and sale including receipts. The reason being, depreciation and amortization rules for books and tax differ. By accurately maintaining these receipts, you can now be eligible to claim tax deductions. As your business grows & the accounting gets more complex, there may be several other processes that may be required. For the most part, if you take note of the above six points, your books should now be all set for your next appointment with your tax preparer.

 

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