Every new business comes with many responsibilities large and small, and financial responsibilities loom large on that list. From getting a special license to having proper insurance, the required financial tasks of starting a new business can be overwhelming for many new business owners, so it’s imperative to become familiar with the must-do financial tasks and start taking care of them sooner rather than later.
Whether you choose to outsource your bookkeeping tasks to an accountant or handle them yourself, you should be aware of the following seven key financial responsibilities when starting a new business. Use this guide to start planning how you’ll address these important financial considerations.
1. Paying Taxes
Ignoring your obligation to pay taxes is one of the fastest ways to get your business in legal and financial trouble. Business owners must commit to paying all required taxes in full and on time.
When starting a new business, you’ll need to apply for a Tax ID number from the federal government. It’s also important to decide on the legal structure of your business, as this will affect many things about how your business pays taxes to the federal and state governments. You’ll also need to familiarize yourself with how your business income will affect your personal taxes.
In addition, there are some tax laws specific to new businesses that it pays to investigate. One of the most important is the first-year bonus depreciation law, introduced as part of the 2017 Tax Cuts and Jobs Act. Enlisting the services of a qualified tax accountant can help you be sure that you’re getting all of the deductions you’re entitled to and paying everything that’s required.Â
2. Record-Keeping
Accurate and detailed record-keeping is a must for any business. Business record-keeping generally needs to include the following at a minimum:
- Accounts payable and receivable
- Loan repayments
- Business expenses
- Bank statements
- Payroll records
- Past tax returns
- Employment tax records
Generally, businesses need a digital record-keeping system to ensure that their accounts are maintained accurately and that information is available when necessary. Hundreds of accounting software options are available to business owners, from old favorites such as QuickBooks to relative newcomers such as the cloud-based FreshBooks.Â
3. Health Insurance
Not all companies are required to provide their employees with health insurance. However, it’s good to start planning as soon as possible—and it’s also worth considering how much it’s costing your employees to not have health insurance.
There’s no doubt that providing health insurance adds a layer of complication and many costs that new businesses would often rather avoid. But health insurance is incredibly important for maintaining a healthy and productive workforce, so consider options such as the federal government’s SHOP marketplace, where small businesses can find more affordable options for providing employee health insurance.Â
4. Business Bank Accounts
Almost all businesses use dedicated business bank accounts to pay their bills, make purchases, receive payments, and perform other essential business tasks. However, a business bank account is a substantial responsibility, and it’s up to the business’s owners to ensure that it’s used appropriately. A business owner should carefully monitor their business bank account for anomalies such as unauthorized expenses or fraudulent transactions. Check your business bank account statement every month, and consider setting up alerts for especially large transactions or business credit cards used outside of a known geographic area.
5. Business Expenses
Business owners must carefully monitor the expenses that their business incurs. Part of the responsibility of running a business involves trimming unnecessary expenses, so it’s always a good idea to examine balance sheets for expenditures that may not be generating sufficient ROI.
Other ways to cut unproductive business expenses and get the most out of your investments include:
- Reducing unnecessary travel by substituting video conferencing
- Shopping around for more competitive insurance rates
- Honing core competencies rather than expanding too quickly
- Cross-training employees and helping them develop new skill sets
- Leasing extra space in your facilities to other businesses
In addition, many types of business expenses are tax-deductible, so it’s crucial for businesses to document their expenses accurately. Everything from manufacturing equipment to the cost of taking a client out to lunch may be deductible, but only if the business owner remembers to save the receipts.Â
6. Startup Costs
This category includes the many expenses that most businesses incur in order to get started, including requirements for government licensure. Such fees often include:
- Business license and incorporation fees
- Surety bond cost (if a surety bond is required)
- Special fees imposed on your particular business sector
- Security deposits on rent and utilities
- Initial inventory
- Website and marketing
- Shipping
Startup costs and regulatory fees can be a significant financial hurdle for small businesses, so new business owners will want to be aware of these potential challenges from the beginning and create a financial plan that addresses them in detail.Â
7. Customer Invoicing
Ultimately, the goal of any business is to get paid and make a profit for goods or services provided, and these goals must be achieved through accurate customer invoicing. Thus, it’s in the interest of your business to create an organized and methodical invoicing system that prevents invoices from getting lost in the shuffle.
Invoicing can often be handled through bookkeeping software, and today’s accounting software options give business owners lots of choices for how to invoice. Businesses with lots of customers should set up reminders to check in on unpaid invoices, and it’s also important to ensure that your business’s invoices are clear, readable, and complete.
Business owners who understand their financial obligations more thoroughly will have an advantage in avoiding financial trouble and fulfilling their responsibilities. When in doubt, consult a qualified accountant or business attorney for help in understanding your business’s financial requirements and responsibilities.
