You’ve just started your new business venture! You’re excited about every part of it except, probably, the accounting. This sometimes scary task is nonetheless required by law, and the Internal Revenue Service (IRS) will come knocking if they don’t have information about your financial activities. With research and discipline, you can make this seemingly overwhelming task a breeze.

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There are numerous types of businesses and each has its own accounting rules. For the purposes of this article, we’ll assume you have a sole proprietorship, meaning you are the only person in control of the company’s activities. We’ll also assume it’s the first day of your business operations. Here are the steps you need to take to successfully operate your business from the accounting side. 

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Get a separate checking account

Open a separate checking account for your business. Then, make sure to keep your personal and business finances separate. If the two get somehow crossed, you must record the transactions either as expenses for your personal salary (if you withdraw) or owner’s investment (if you buy things personally that are for the business.) 

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Decide how you will record your finances

Typically in the early stages of a business, things are simple and can be recorded in a spreadsheet. If you want to make things even easier, you can use accounting software. Quickbooks Pro is an excellent product for beginners.

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Understand the statements needed

Accounting is fairly straightforward. There are three types of statements you need to run your business:

 

• Balance Sheet: This is a statement of your assets (things that make you money), liabilities (money that you owe), and equity (the net worth of your business.) Assets can include cash, inventory, accounts receivable, and prepaid expenses. Liabilities include things like bills you owe, as well as balances on loans or credit cards. When you add up your assets, they must equal your liabilities plus equity. 

 

• Income Statement: A snapshot of money coming in, with accounting for the cost of doing business. Money coming in usually includes sales. Cost of goods sold (what the supplies cost) and direct selling expenses (related just to the sale of your product) should be factored into your income. Expenses include office supplies, rent, and anything else you need to run your company. 

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• Cash Flow Statement: This type of statement comes in many forms. It serves to help you track money as it goes in and comes out. This statement shows you your starting to balance money that comes in, money that goes out, and the remaining balance, helping you to make sure you have the funding you need to cover day-to-day operations. 

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While accounting can be overwhelming, it is crucial. If you keep detailed records of your transactions, you will be a lot happier when it comes time to file your taxes! 

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You should also remember that while new businesses lose money for some time, the end goal is to make money so you gain wealth and financial freedom. If you are losing money, keeping records can help you understand where you need to make adjustments. If you are making money, your books can help you determine where to invest those funds.

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I hope this explanation clears up some of the confusion of accounting for you! Best wishes for your continued success!