As a new business owner, you have done a lot of homework and research before taking the big step. Day 1 is when you will begin applying all that knowledge and training to your business. And the one moment all new business owners excitedly wait for is their first-ever financial transaction as an independent entity – and the first-ever record in the books of accounts.
Starting Books of Accounts From Day 1
While your first day as a new business owner might not be very eventful, it is still important to develop the habit of keeping your books of accounts updated daily from Day 1.
From transactions directly related to your business, such as selling your product or providing professional services, to routine expenses, such as paying for lunch or coffee or even travel costs, must be duly recorded right from the beginning. Recording such transactions immediately takes the burden of remembering them off your mind. With each passing day, the numbers will keep piling up, making you lose track of them when you finally update your accounts.
Hence, it’s always advisable to start recording and updating your books of accounts regularly. This stands true for small business owners, self-employed professionals and freelancers. It’s one habit that will save you time and stress when tax filing season comes along.
But how exactly do you go about doing it?
Things To Do Before Day 1
One of the most vital things in any business organization is ensuring you have an accountancy and bookkeeping framework ready. Here is a checklist of things you need to do before you log in that first transaction:
Open a Separate Bank Account
In the case of a registered company, the very first step is opening a dedicated bank account for all your business needs. Please note this account must be separate from your personal account as it keeps your personal assets safe in case of any unforeseen event like an audit, lawsuit or bankruptcy. Again, it also makes it easier to sort your personal gains or expenses from your business for taxation purposes.
Secondly, decide on which modes of payment – cheque, cash, electronic funds transfer or credit card – you would prefer your clients to use. Accordingly, instruct the bank to enable those modes of payment for your business account. And while you’re at it, identify which kind of credit card would suit your business needs most and get a new one solely for your business expenses. If your business involves lots of travel, you can opt for a credit card that offers perks such as miles or dine-outs.
Things To Do From Day 1 of Keeping Books of Accounts
Track and Record Your Expenses
As mentioned above, tracking your expenses, no matter how small, is one of the pillars of running your business smoothly. Even before you open your doors to customers, you must have undergone quite a few expenses. These expenses are also part of your business expenses and should be considered when filing your company’s taxes. Even if you are not a registered company, these expenses count as professional or business expenses and might help you save on taxes later. So make sure you save all receipts for any expenses related to your business or professional work, including dinner bills, game tickets and even gas station receipts. Write down details such as the date and purpose of the expense on the other side of the receipt for better reference. File them away carefully in chronological order and make necessary entries in your books of accounts.
Setup a Bookkeeping System
You might not have a dedicated bookkeeping department as a new business owner. If you’re a self-employed professional, chances are it’s a one-man show: you don the hat of CEO, manager, accountant, bookkeeper, delivery person and everything else you need to be to make your work flourish. But bookkeeping is a specialized and time-consuming skill that includes tasks such as:
- Recording and maintaining every financial transaction, including revenue and expenses
- Submitting bills
- Making timely payments to suppliers
- Preparing, balancing and storing general ledgers
- Tracking the company’s banking activities
- Setting up a payroll system for employees, if any
- Filing tax returns
Several apps are available to help you with such bookkeeping tasks. Many of the basic ones are available for free and go a long way in helping you organize your finances in the beginning. As your business expands, you can upgrade to advanced, paid versions.
The other option is outsourcing your bookkeeping needs. Having an experienced bookkeeper with you from the beginning has its advantages. The expert can set up your bookkeeping system from the start, customizing it to suit your business needs. Outsourced bookkeeping services are also quite flexible: you can hire them monthly and for particular services only. It saves you money and gives you the advantage of their specialized knowledge from Day 1.
Identify Tax Obligations
Taxation rules are different for different kinds of businesses. While sole proprietorships or partnerships claim business income on their personal income tax, corporations and registered firms are separate entities from their owners and must file separate taxes for their businesses. Such corporations also enjoy lower corporate taxes. All the receipts you saved from the expenses incurred to run the business can help you reduce your tax bill to zero. Bookkeeping might look daunting with no direct return, but it rewards you with a lower tax bill.
Update and Reevaluate Regularly
When you do bookkeeping from Day 1, don’t record your transactions. Also, look at your books and see the trend of your cash inflows and outflows on a monthly and quarterly basis. It can give you useful insights into your business performance, spending and cash reserves. Identifying gaps early can prevent the issue from snowballing into a huge expense.
With all these things in place, you can now proceed with the first-ever transaction of your new business. Congratulations, and here’s to many more successful transactions!
Contact KSSP Partners LLP in Markham and Across the GTA for Your Bookkeeping Needs
Talk to a professional bookkeeper to outsource your bookkeeping so that you can save time and focus on your business. At KSSP Partners LLP, our accountants and bookkeepers can provide services to outsource all your accounting needs. To learn more about how KSSP Partners LLP can provide you with the best accounting and bookkeeping expertise, contact us online or by telephone at 289-554-5997.