Starting a business can be overwhelming, but also incredibly rewarding. From business forecasts to marketing strategies, there are many financial decisions you’ll need to make to get it right. Understanding your taxes is just as important as managing your transactions which is just as important as staying motivated.
We’re here to get you started on the right path, with some tax tips using TurboTax to help get your business set up, a few ways to manage your transactions and finances with QuickBooks, and finally, some inspiration from some rockstar entrepreneurs in case the going gets tough. Remember – you’re not alone. We can power prosperity together!
Tax Tips from TurboTax
1. Make a Plan & Set Yourself Up for Success
Losses are a part of life when it comes to starting your own business. Don’t worry, everyone experiences them. But what might help prepare you in advance is to start by writing out a business plan and documenting your marketing and management efforts. And make sure to CYA (cover your assets!) on the tax front – when you’re first starting out, apply for an Employer Identification Number (EIN) with the IRS online.
2. Understand your Accounting Methods
Once you’re up and running, you will have to report and keep track of all your transactions. A business must figure out its taxable income and file a return for a tax year or annual accounting period. You’ll need to select an accounting method, which is a set of rules that determines when and how you report your business income and expenses.
- Cash: When you use the cash method of accounting, you count income or expenses at the time you actually receive a payment or pay a bill. A cash-basis report shows income only if you have received it, and expenses only if you have paid them. For example, if you bill for services you provide in mid-December 2017, but don’t receive the check until mid-January 2018, you would include the payment in your 2018 income. The cash method is used by most sole proprietors and other self-employed individuals with no inventory.
- Accrual: Under the accrual method, you record income when you earn it and expenses when you incur them. The point where you enter a transaction on your books and when you actually pay or receive cash may be two separate events. Following the example above, a taxpayer who uses the accrual method and provides services in December 2017 would include them in income for 2017, regardless of when they are actually paid for the services.
Until you are making more than $1M a year in revenue, it’s beneficial to report using the cash method of accounting, where income is reported as it is received, rather than when it is billed. The cash method also gives you greater flexibility to save taxes by shifting income and expenses between years.
3. Document Your Income and Expenses
Documenting everything you do when you start your business will help you out in the long run. Be sure to keep track of your income and expenses and accurately report them back to the IRS on your annual tax return. Keep track of everything – from the new computer you bought, to the gas money you spend driving to meetings, and anything else that could help you to substantiate your tax deductions.
Best Practices Using QuickBooks
1. Figure Out Your Value and Make a Plan
Figure out what exactly you are selling! Don’t try to do everything – be very specific about the goods or services you offer. Once you know exactly what your value proposition is, it will be easier to market it to the right people. It will also be easier to track and report in your accounting software when you are clear on what your company does.
Make sure to come up with processes for your business that will help ensure success. Think about what processes would help you on a weekly, monthly, quarterly, and annual basis. For example: tracking results (essential!), onboarding new clients, and managing your finances, to name a few. If you need help, there are QuickBooks ProAdvisors who you can consult with on some best practices.
2. Control Cash Flow
Once the money starts rolling in, make sure you keep track of it! QuickBooks can be a great tool to help you organize your business’s finances. Instead of referencing your online bank balances, keep your QuickBooks files updated regularly and understand how to use them to manage your cash flow. By entering your financial transactions often and doing daily reconciliations in QuickBooks, you will get a great idea of where money is coming from and where you most often spend it.
3. Manage Bills and Accounts Payable
When you first start a business, the people you work with are incredibly important to the future success of your company. Keeping your vendors, suppliers, and employees happy is crucial. Luckily, you can use QuickBooks to enter and pay bills and even help you handle your payroll. Entering the bills for your vendors with the correct terms and due dates will help you stay on top of keeping them paid and happy. Paying your bills directly through QuickBooks via online bill pay or printing checks will reduce unnecessary data entry and increase productivity.
Lastly, Keep Going!
We’ve met and helped a lot of small business owners and self-employed folks over the years. It’s always fascinating hearing their stories and finding out how they became successful on their own terms and stayed motivated throughout the process. We asked a few of them what they wish they had known before starting their business to help inspire you. Here’s what they had to say!
1. Don’t Be Afraid
“I was afraid of starting my own business, and I wish someone had told me just how much support and love would come my way. My family in Massachusetts and my husband are really supportive. One of my closest friends is also an entrepreneur, and it’s good to have people around that understand my dream. It’s a new and exciting journey – every day is a new day.”
2. Branding is Crucial
“Branding is so important, and we recently learned about it; we didn’t do much work on our brand before we launched. I’m an immigrant, so even though I am twenty-something years old, I grew up using a typewriter, so I’m still figuring technology out! Branding is something I’ve had to look into, as it is key to appealing to our audience and building our business.”
3. Save Money
“Be prepared for the overhead cost. A lot of times, as business owners, we may identify a solution to the market, but in order to provide that solution, you need overhead. Even if you aren’t bringing in income, you will still owe those overhead costs. So save money to be able to pay those overhead costs when you don’t have revenue.”