Setting up a new business can be an exciting time for all involved and perhaps particularly so if you’re the driving force behind the start-up. When you’re busy building your new brand it can be all too easy for small details to be overlooked, but it’s important to take care of the finer points of tasks such as record keeping right from the word go.
The basics are easy to understand and if done regularly, can be easy to achieve. This article shall tackle key elements such as, financial statements, income and expenditure, tax deductible expenses and preparing your tax return.
All businesses are required to follow basic record keeping procedures which can help you to analyse and keep track of performance as well as making it easier to prepare your tax returns accurately and on time.
Firstly it is vital that you prepare your financial statements. This will allow for an accurate understanding of your balance sheet. If you are to understand the general condition of the company, a clear and well balanced financial statement is absolutely fundamental to its success.
Possessing accurate records could improve your chances of success as a small business. Furthermore, clear and accurate accounts can also help to convince potential lenders that yours is a sound business model. Due to the complexity of an in depth financial statement, It is worth your time to ensure that it is maintained throughout the business year, not just before meeting investors or lenders.
Once you possess a good financial statement, you should be able to identify the breath of the businesses income and expenditure. This is once again an important element of future success. Only by understanding the difference between the incomings and outgoings will any company be able to grow within its means. Furthermore, an accurate understanding of this can tell you when to invest, or when to wait. It can even tell you if the company is losing an unsustainable amount of money, and exactly where this loss is occurring.
If maintaining a detailed and in-depth overview of accounts then the chances of the company turning a profit should start to increase. However, as the money comes in, taxes will surely follow.
Although everybody must pay tax, there are certain situations where a company is able to reduce the amount paid out in tax, or even gain some back. For this reason all companies need to identify tax deductible expenses.
As already mentioned, the key to accurate record keeping is consistent maintenance. This is rarely more important than when applied to receipts, invoices and other proof of financial activity. Money and property may be received from multiple sources, but by maintaining an accurate history of incomings and outgoings it is possible to separate expenses and identify the non-taxable income. Keeping track of deductible expenses is an important aspect of business management. The amount saved may help your company grow, whereas the overpayment of tax can cause unnecessary strain on your finances.
Maintaining clear record keeping can help your company grow, and offer the clarity you need to run an efficient business. However there is another reason to maintain clear accounts and that is to provide the Internal Revenue Service (IRS) with an honest and accurate cross section of your taxes.
Preparing your tax return for investigation by the IRS is generally done by using the same documents used to create your business statement. However the taxes paid must match you records. For this reason it is important to be able to prove items reported in tax return.
IRS are able to request details at all times for inspection, this is why it is important to maintain accurate records. By possessing proof for the items that you have reported in your tax return, you are able to provide the IRS with all the relevant information. This should speed up the process of the inspection whilst reducing the risk of having to pay additional taxes or fines through poor tax management.
Whatever the size or core operations of your business, it is likely that you remain heavily on finance. Managing your books and knowing the expenses can help you to create a watertight business model from the outset.
About the Author: Robert Wells writes for Juniper Accountancy, a chartered Bristol accounting firm. As professional Bristol accountants we can provide your business with a complete end to end service to take care of all your accounting and tax needs.