Accounting 101 for the first-time entrepreneur
Aside from keeping business financial records separate from personal records, what other accounting basics should entrepreneurs be aware of? In this episode of Rock Health’s “Startup Elements,” Richard Croghan and David Sage, partners at accounting firm Moss Adams, outline the most important accounting issues and deadlines for startup owners.
First, all entrepreneurs should keep regularly updated cash flow statements and balance sheets. When the company is still in its earliest stages, it’s OK to keep records in an Excel spreadsheet, Sage says, but as the company grows they should eventually be moved into a real accounting software system.
If you only have a few employees, you can also do without a human resources representative. Instead, contract with a payroll company that can also help with accounting processes and making sure taxes are filed properly.
Another basic thing to do upon founding a company is to choose a year end date, which for most companies is the calendar year, Croghan says. While some documents like receipts can be tossed after a few years, many documents should be kept forever, including organizational documents, equity information, signed contracts and financial statements.
When it comes to tax filings, Croghan advises keeping those for at least seven years. Most importantly, make sure taxes are filed on time. Corporation tax returns are due in March, but business owners can file for an automatic six-month extension.
If your company isn’t making money, you won’t owe any federal income taxes, but states may still require some kinds of taxes. You may also be subject to other fees like payroll tax, sales tax, franchise tax to the state of Delaware and an annual fee to the Secretary of State.