We’ve talked a lot about the different things you need to consider when starting your own business and gone over the types of businesses you can start. Now that you have done your research about your business and decided which business entity will work best for you, what other things should you be thinking about?
First of all, you need to set up a separate checking account for your business. Depending on your business, you may also need a savings account and/or a credit card.
- Deposit all income and pay all expenses out of your business checking account to avoid mingling your business activity with your personal activity.
- If you do need to pay some business expenses with your personal funds, make sure the business reimburses you. This ensures you have a record of this expense so that you can deduct it on your tax return.
Next, you need to set up your accounting system. There are many programs out there like QuickBooks, Xero, FreshBooks, Wave, or Sage. Before you choose a system, make sure it will track what you need it to track. If you need to access your accounting system from multiple sites, you may be better served with a system that works in the cloud rather than on a desktop. If you are uncomfortable setting up the system, it may be beneficial to hire a business that specializes in providing accounting services to small business owners.
Make sure to keep track of all your income and expenses. People often ask me what business expenses they can deduct on their tax returns. The global response is, if the expense is necessary for your business, you can deduct it. Here are some examples of expenses:
- Cost of setting
up your business
- Legal fees
- Research expenses
- Office supplies
- Business cards
- Paper
- Printer ink or toner
- Paper clips, etc.
- Supplies you need for the business
- Mileage related to the business, if you use your personal vehicle
- Advertising
- Fees paid to
others
- Attorneys
- Accountants
- Contractors
- Computer software for your business
- Meals to meet
with clients or potential clients
- Current tax law allows you to deduct 50% of expenses for meals
- Entertainment expenses are not deductible for tax purposes
There are other expenditures that usually aren’t considered expenses on the tax return such as assets. While assets are often not expensed directly, over time you are able to deduct them as an expense through depreciation. Examples of asset purchases are:
- Computers used solely for your business
- Printers, scanner, and any other office equipment
- Vehicle for your business (if necessary)
- Any other equipment necessary to your business
If you are selling products, you will also need to keep track of your inventory. If you are purchasing the product and selling it without any modifications, your inventory is the products you have purchased and not yet sold. If you are making modifications to the product or you are making the product yourself, your inventory cost will be the cost of the materials you purchased plus any other costs required to modify or make the product you are selling.
Ready to set up that business but still have questions? Reach out to us. We are happy to help you launch your new company!
Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.
