Tuesday, November 14, 2006

Quick Accounting Tips

During just about every coaching call I take at some point bookkeeping or accounting gets brought up. Which, I suppose is good, because if there is a mistake to learn from, I’ve probably made it. In most if not all instances, the client either doesn’t have a bookkeeper/accountant working on their books, or if they do, they aren’t communicating with that person well enough to know exactly what to expect out of them. So, I’ve jotted down some quick notes to ask your CPA when you meet them. You may have decided already on your legal entity or your chart of accounts, but it won’t hurt to ask, so you get his or her perspective.

1. What form of business entity should you establish?

Ask your CPA what form of business he or she thinks you should start with -- sole proprietorship, Limited Liability Company (LLC), Partnership, C Corporation or S Corporation. They will ask you a few questions, then recommend which form seems right for your startup. There are both tax and liability issues involves, so if the form you choose requires legal help, they can probably recommend an attorney.
CPAs and attorneys in the same general location typically know which of their fellow professionals have experience in what types of work for which industries. If they refer another professional to you, their referral is based on working experiences, which are much more helpful than yellow page ads.

2. If and when do you need to start paying estimated taxes?

Being self employed means you have to keep track of (and pay) your own taxes rather than have someone else withholding it from your check. As miserable as that sounds, there is also the benefit of the ‘write-off’ that you will be able to take advantage of.
Depending on your situation, you may or may not have to pay estimated taxes to begin with. The CPA will be able to advise you, and if you’ll need to pay, give you or direct you to the proper forms to use.
Be responsible and have your taxes done properly. It can become a tremendous hassle if you don’t, and could be the one mistake that will run you out of business.

3. Which accounting software do they recommend?

You may or may not plan on doing any data entry or bookkeeping yourself, but you need to understand what to look for if you need accounting software, as well as how you use it and what your options are.
When you meet with your accountant, discuss which accounting software program, if any, you’re considering for your small business and see what they think. You don’t want to go with something that’s going to cause problems down the line. And you certainly don’t want to change programs, converting from one program to another is a hassle you want to avoid if you possibly can.

4. What chart of accounts should you set up in the software?

Every accounting setup has a chart of accounts, it’s the accounting framework which organizes all of a company’s transactions. But it’s not a ‘chart’ – it’s more of a list, and they aren’t bank accounts like we are accustomed to. The best description of the accounts is they are like buckets which can accept numbers that represent amounts of money. Some buckets are grouped together. Maybe that wasn’t a great analogy – that’s why I have an accountant do all of our work.
Many of accountants prefer to provide you with their own list to set up from scratch instead of using the software’s default. Make sure you give them every bit of the information regarding your business so they can design the chart of accounts with that information in mind. They are trying to save you money – do what they say.

5. Can they help you get organized to handle employer taxes?

Having employees requires whole new levels of paperwork and money management. Make sure you inform them of your current and planned employee status, as employee and payroll issues – when handled improperly – will snowball in a hurry.
I will make my next post with some information regarding employee withholding and all of that garbage.
I am quite familiar with how boring and irritating this kind of stuff is. But I would have loved for someone to have given me this information when I started out – so I’m passing it on. It will save you a lot of money. USE IT.

Nick Berry

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