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Small business accounting 101 ten steps to get your startup on track — ecommerce marketing...

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    Small Business Accounting 101: TenSteps to Get Your Startup on Track

    215 shares

    How to start a business (/blog/topics/how-to-start-a-business)25 comments (https://www.shopify.com/blog/15334373-small-business-accounting-101-ten-steps-to-get-your-startup-on-track#disqus_thread)

    by Richard Lazazzera (//twitter.com/RichardABLS)

    https://www.shopify.com/https://www.shopify.com/loginhttps://www.shopify.com/bloghttps://www.shopify.com/blog/topics/how-to-start-a-businesshttps://www.shopify.com/blog/15334373-small-business-accounting-101-ten-steps-to-get-your-startup-on-track#disqus_thread

  • ThisisaguestpostbyKendraMurphyfromBenchAccounting(http://www.bench.co?utm_source=Shopify&utm_medium=GuestPost&utm_campaign=10StepsBlog).

    Youreabouttolaunchyouronlinestore(ormaybeyoujustlaunched)congratulations!Ittakesperseveranceandpassiontogettothepointyoureat.However,asyouknow,businessownershipisaconstantfloodofsatisfyingmilestonescoupledwithexpandingtodolists.Withyourlaunch,youllneedtogetontopoftheaccountingtasksthatcomealongwithowningastore.Thislistof10smallbusinessaccountingstepswillgiveyoutheconfidencetoknowyouvecoveredyourbases,andarereadytomoveontothenextitemonyourbusinesstodolist!

    1. Open a Bank Account

    Afteryouvelegallyregisteredyourbusiness,youllneedsomewheretostashyourbusinessincome.Havingaseparatebankaccountkeepsrecordsdistinctandwillmakelifeeasiercometaxtime.NotethatLLCs,partnerships,andcorporationsarelegallyrequiredtohaveaseparatebankaccountforbusiness.Soleproprietorsdontlegallyneedaseparateaccount,butitsdefinitelyrecommended.

    Startbyopeningupabusinesscheckingaccount,andthenanysavingsaccountsthatwillhelpyouorganizefundsandplanfortaxes.Forinstance,setupasavingsaccountandsquirrelawayapercentageofeachpaymentasyourselfemployedtaxwithholding.Nextyoullwanttoconsiderabusinesscreditcardtostartbuildingbusinesscredit.CorporationsandLLCsarerequiredtouseaseparatecreditcardtoavoidcomminglingpersonalandbusinessassets.

    Beforeyoutalktoabankaboutopeninganaccount,doyourhomework.Shoparoundforbusinessaccountsandcomparefeestructures.Mostbusinesscheckingaccountshavefeesthatarehigherthanpersonalbanking,sopaycloseattentiontowhatyoullowe.

    Inordertoopenabusinessbankaccount,yourerequiredtohaveabusinessname,andusuallyberegisteredwithyourstateorprovince.Checkwiththeindividualbankforwhatdocumentstobringtotheappointment.

    2. Track Your Expenses

    Thefoundationofsolidbusinessrecordkeepingislearningtotrackyourexpenseseffectively.Itsacrucialstepthatallowsyoutomonitorthegrowthofyourbusiness,buildfinancialstatements,keeptrackofdeductibleexpenses,preparetaxreturns,andsupportwhatyoureportonyourtaxreturn.

    http://www.bench.co/?utm_source=Shopify&utm_medium=GuestPost&utm_campaign=10StepsBlog

  • Rightfromthebeginning,youshouldestablishasystemfororganizingreceiptsandotherimportantrecords.Thisprocesscanbesimpleandoldschool(bringontheFiloFax),oryoucanuseaservicelikeShoeBoxed(https://www.shoeboxed.com/).ForAmericanstoreowners,theIRSdoesntrequireyoutokeepreceiptsforexpensesunder$75.00,butitsagoodhabitnonetheless.

    Therearefivetypesofreceiptsthatyoushouldpayextraattentionto:

    MealsandEntertainment:Conductingabusinessmeetinginacafeorrestaurantisagreatoption,justbesuretodocumentitwell.Onthebackofthereceipt,recordwhoattendedandthepurposeofthemealorouting.

    OutofTownBusinessTravel:TheIRSandCRAarewaryofpeopleclaimingpersonalactivitiesasbusinessexpenses.Thankfully,yourreceiptsalsoprovideapapertrailofyourbusinessactivitieswhileaway.

    VehicleRelatedExpenses:Recordwhere,when,andwhyyouusedthevehicleforbusiness,andthenapplythepercentageofusetovehiclerelatedexpenses.

    ReceiptsforGifts:Forgiftsliketicketstoaconcert,itmatterswhetherthegiftgivergoestotheeventwiththerecipient.Iftheydo,thentheexpensewouldbecategorizedasentertainment,ratherthanagift.Notethesedetailsonthereceipt.

    HomeOfficeReceipts:Similartothevehicleexpenses,youneedtocalculatewhatpercentageofyourhomeisusedforbusinessandthenapplythatpercentagetohomerelatedexpenses.

    Startingyourbusinessathomeisagreatwaytokeepoverheadlow,plusyoullqualifyforsomeuniquetaxbreaks.Youreabletodeducttheportionofyourhomethatsusedforbusiness,aswellasyourinternetconnection,cellphone,andtransportationtoandfromworksitesandforbusinesserrands.Anyexpensethatsusedpartlyforpersonallifeandpartlyforbusinessmustreflectthemixeduse.Forinstance,ifyouhaveonecellphone,youcandeductthepercentageyouusethedeviceforbusiness.Gasmileagecostsare100%deductible,justbesuretoholdontoallrecordsandkeepalogofyourbusinessmiles(whereyouregoingandthepurposeofthetrip).

    3. Develop a Bookkeeping System

    Beforewejumpintoestablishingabookkeepingsystem,itshelpfultounderstandexactlywhatbookkeepingis,andhowitdiffersfromaccounting.Bookkeepingisthedaytodayprocessofrecordingtransactions,categorizingthem,andreconcilingbankstatements.

    Accountingisahighlevelprocessthatlooksatbusinessprogressandmakessenseofthedatacompiledbythebookkeeperbybuildingfinancialstatements.

    https://www.shoeboxed.com/

  • Asanewbusinessowner,youllneedtodeterminewhichbookkeepingmethodtouse:

    Withsomanyoptionsoutthere,youresuretofindabookkeepingsolutionthatwillsuityourneeds.

    CanadianandAmericanbusinessownersneedtodeterminewhethertheyllusethecashoraccrualmethodofaccounting.Letstakealookatthedifferencebetweenthetwomethodshere:

    CashMethod:Revenuesandexpensesarerecognizedatthetimetheyareactuallyreceivedorpaid.

    AccrualMethod:Revenuesandexpensesarerecognizedwhenthetransactionoccurs(evenifthecashisntinoroutofthebankyet)andrequirestrackingreceivablesandpayables.

    Technically,Canadiansarerequiredtousetheaccrualmethodbuttosimplifythings,youcanusethecashmethodthroughouttheyearandthenmakeasingleadjustingentryatyearendtoaccountforoutstandingreceivablesandpayablesfortaxpurposes.

    AmericanbusinessownerscanusecashbasedaccountingifrevenuesareunderUSD$5M,otherwisetheymustusetheaccrualmethod.

    4. Set up a Payroll System

    Asanewonlinestoreowner,youlllikelybeaonepersonshow.However,maybeyoullhireaparttimeemployeetohelpyouout,orafreelancertodesignyourlogo.Rightaway,youneedtoestablishwhetherthatindividualisanemployeeoranindependentcontractor(https://bench.co/blog/employeesindependentcontractors/).Foremployees,youllneedtodecideonapayrollscheduleandensurethatyourewithholdingthecorrecttaxestherearelotsofservices(http://www.inc.com/guides/2010/05/choosingapayrollservice.html)that

    YoucanchoosetogotheDIYrouteandusesoftwarelikeQuickbooks(http://www.quora.com/WhatisthebestaccountingsolutionforaneCommercestore)orWave(https://www.waveapps.com/).Alternatively,youcoulduseasimpleExcelspreadsheet.

    1.

    YouhavetheoptionofusinganoutsourcedorparttimebookkeeperthatseitherlocalorcloudbasedlikeBenchAccounting(https://bench.co/).

    2.

    Whenyourbusinessisbigenoughyoucanopttohireaninhousebookkeeperand/oraccountant.

    3.

    https://bench.co/blog/employees-independent-contractors/http://www.inc.com/guides/2010/05/choosing-a-payroll-service.htmlhttp://www.quora.com/What-is-the-best-accounting-solution-for-an-eCommerce-storehttps://www.waveapps.com/https://bench.co/

  • canhelpwiththis.Forindependentcontractors,besuretotrackhowmuchyourepayingeachperson.Americanbusinessownersmayberequiredtofile1099sforeachcontractoratyearend(youllalsoneedtokeeptheirnameandaddressonfileforthis!).

    5. Investigate Import Tax

    Dependingonyourbusinessmodel,youmaybeplanningtopurchaseandimportgoodsfromothercountriestosellinyourstore.Whenimportingproducts,youlllikelybesubjecttotaxesandduties.Thesearefeesthatyourcountryimposesonincominggoods.TakethetimetolearnaboutimportinggoodsintotheUS(www.sba.gov/community/blogs/importinggoodsus%E2%80%93introductoryguidesmallbusinessowners)andCanada(www.cbsaasfc.gc.ca/import/guideeng.html),andtheassociatedtaxes,sothatyouknowtherulesfromthegetgo.Also,ifyouareimportinggoods,theDutyCalculator(www.dutycalculator.com/)canhelpyouestimatethefeesinyourownbusinessandplanforcosts.CheckouttheseadditionalarticlesonimportingintoCanada(www.dutycalculator.com/countryguides/ImportdutytaxeswhenimportingintoCanada/)andtheUS(www.dutycalculator.com/countryguides/ImportdutytaxeswhenimportingintotheUnitedStates/)ifyouhaveanymorequestions.

    6. Determine How Youll Get Paid

    Whensalesstartrollingin,youllneedawaytoacceptthepayments.IfyoureaNorthAmericanstoreowneronShopify,youcanuseShopifyPayments(http://docs.shopify.com/manual/more/shopifypayments)toacceptcreditcardpayments(Visa,AmericanExpress,andMastercard).Thissavesyouthehassleofsettingupamerchantaccountorthirdpartypaymentgateway.

    IfyouwanttoacceptcreditcardpaymentswithoutusingShopifyPayments,youlleitherneedamerchantaccount(www.shopify.ca/faq/whatisamerchantaccount)oryoucanuseathirdpartypaymentprocessorlikePayPal.Amerchantaccountisatypeofbankaccountthatallowsyourbusinesstoacceptcreditcardpaymentsfromcustomers.Ifyouuseathirdpartypaymentprocessor,thefeesaregenerallyaround2.9%+$0.30pertransaction.Youcanconsultthislisttohelpyoufindapaymentgateway(www.shopify.com/paymentgateways#Gateways)thatwillworkforyourlocation.

    7. Establish Sales Tax Procedures

    TheworldofeCommercehasshakenupsalestaxregulationsandtheyareadmittedlyabitconfusingduetolocationissues.Whenacustomerwalksintoabrickandmortarretailshop,theypaythesalestaxofwhateverstateorprovincetheymakethepurchasein,no

    https://www.shopify.com/blog/www.sba.gov/community/blogs/importing-goods-us-%E2%80%93-introductory-guide-small-business-ownershttps://www.shopify.com/blog/www.cbsa-asfc.gc.ca/import/guide-eng.htmlhttps://www.shopify.

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