In Pursuit of Profit
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Take the time needed to effectively plan for not only the most fun parts of the new venture, but to think through key accounting considerations that can aid in promoting growth and mitigating financial risk.
Please note, it’s always a good idea to seek the professional advice of someone who has significant experience in any area where you have questions around your new business formation – a consulting accountant, financial advisor, or a lawyer. These types of professionals have the expertise needed to address your unique needs and goals to help you come up with the best plan for your new business. But, if you need some basic advice on what you’ll need to think about when starting a new business, this resource will guide you through the fundamentals of starting a business.
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Choosing the right business type will affect your accounting requirements and tax obligations. Take the time to understand the difference between sole proprietorships, partnerships, LLCs, and corporations to choose the business structure that’s going to best fit your personal needs. Once you have chosen a business type for your new venture, understand what tax compliance will look like at the local, state, and federal levels.
Deciding on an accounting platform to use is a critical decision for any new business because it’s a decision that needs to be made both with now and later in mind. Do not select software that can accommodate your minimal business needs now but can’t grow with you. Conversely, don’t choose software that will work well once your business is much larger but is far more than you need right now, or you’ll end up overpaying for your needs.
Determine if you’ll need cloud accounting software, or if a traditional desktop accounting platform would work best. Remember, the software you choose will be your primary method of financial record keeping and retention, which is extremely important not only for effective business management but also for compliance requirements. Ensure that the software you select can accommodate the chart of accounts you plan on using without requiring any workarounds. Pay specific attention to the financial statements and reports that it’s capable of generating to ensure everything you’ll need is included. While all accounting software should have the basics like balance sheets, income statements, and cash flow statements, some handle more complicated accounting functions like depreciation and amortization better than others. If you know you’ll have more complicated accounting functions, ensure that the software you select applies accounting standards in a way that’s user-friendly for your business.
Budgeting and Forecasting
Creating a budget before you start generating revenue can be feel scary because the money you’re spending is either from your own investment in the business or the contributions from your funders, but getting in the routine of planning your spending is an important practice. Understand what you have available to spend and then determine where it is going to be best spent. Determine how you will measure results and what kind of ROI you would like to see. Once you start generating sales, engage in the practice of regular forecasting to understand what may be coming next.
Use ongoing budgeting and forecasting to manage cash flow, ensuring that you have the funds needed to buy inventory, invest back in the company, and pay your employees (including yourself).
Understand the various employee classifications and determine how you will pay your staff in compliance with applicable regulations. Employees will need to be paid wages, but you will also need to take the appropriate withholdings and pay all applicable payroll taxes. Stay up to date on what’s required here and dig into the details of employee distinctions for your region or industry. Some of your employees may actually be considered independent contractors, which will change how their compensation should be handled. Depending on your specific needs, it may make more sense to hire a payroll service than to handle it yourself.
Determine when you will get business insurance, and which type you’ll need. Business liability insurance and property insurance will protect against different areas of the business, but both are important to consider as you get the business up and running. Most new business owners start with business insurance from the provider that they already use to safeguard their home, car, or other personal assets. Then, they explore other options as their business grows and the level of protection they need increases.
Ready to get started? Use this free checklist to ensure you don’t miss anything along the way:
When you need help starting a business, please reach out to us! Our team of accounting consultants can provide as much or as little help as you need to get you started. We can even manage your bookkeeping and accounting functions on an ongoing basis so you can focus on running your business. We are a team of US-based accountants with deep experience across a wide variety of industries and business stages. Contact us today to find out more about our top-rated accounting services!