Author: Laura

10 Basic Steps To Starting A Business

Posted on | by Laura

Starting a business comes with a lot of responsibility and a new family member, and his name is Uncle Sam.  One thing about family, we try to avoid any family disputes, to do this, you must follow the rules and regulations, which govern starting and running a business. There is no excuse for ignorance of the Law! There are 3 branches of Government you will have to answer to, Federal, State, and Local.

1. PLAN YOUR BUSINESS

The first mistake many people make is they start a business without a plan or vision for the business! When I hear someone talk about starting a business my mind wanders to a scripture passage found in the bible Proverbs 29:18, which says where there is no vision, the people perish, the same rule applies to starting a business without a vision for your business, it is destined for failure.

A Business Plan is a document that clearly describes your vision, including all the details of your business operations. If you plan to seek financing for your business then a business plan is a must! The main purpose of a business plan is to guide the entrepreneur from where he should start and the business goals.

2. REGISTER A FICTITIOUS BUSINESS NAME

If your intention is to operate your business under a different name other than your own, you may be required to register your trade name with your state or local government. This form of registration is known as “doing business as” (dba) or fictitious name filing. Check with your state office for information on Business Name Registration.

3. DETERMINE IF YOU NEED A EMPLOYER ID?

Generally, if you are going into business for yourself and you are not starting a corporation or non-profit organization and do not employ anyone, you do not need an EIN. Your social security number is your EIN. You will only need an EIN if you answer “Yes” to any of the following questions.

4. CHOOSE A BUSINESS STRUCTURE
The legal structure you choose for your business will impact your business registration requirements, how much you pay in taxes, and your personal liability.

Sole Proprietorship – A sole proprietor is not only one of the common forms of business but it is also one of the easiest types of businesses to form. You are not required to do any kind of special incorporation filing. A sole proprietor is someone who owns an unincorporated business by himself or herself. A business, owned by one owner, makes no legal distinction between the individual owner and the business itself for tax purposes. The owner is fully liable for any legal actions brought against the company.

General Partnership – A business, owned by multiple owners, that makes no legal distinction between the individual owners and the business itself for tax purposes. Owners are fully liable for any legal actions brought against the company.

Limited Liability Partnership – A business, owned by general partners and limited partners, that makes no legal distinction between the General Partners and the business itself for tax purposes. General Partners are also fully liable for any legal actions brought against the company while Limited Partners have limited liability. A limited liability company (LLC) or corporation helps protect your personal assets in case a lawsuit is brought against your business for products sold or services rendered. But may require the help of a professional to start.

C-Corporation – A business, owned by owners and an unlimited number of shareholders, that is a separate legal entity from its owners and shareholders for tax purposes. Owners of a C-Corporation are taxed twice: once as owners and once as shareholders. Owners and shareholders are not legally liable for any legal actions brought against the company.

S-Corporation – A business, owned by one owner and a limited number of shareholders, that is a separate legal entity from the owner and the shareholders. The owner of an S-Corporation only gets taxed once, must be a U.S. citizen, and is not liable for any legal actions brought against the company. Shareholders are not liable for any legal actions brought against the company.

Limited Liability Corporation (LLC) – A business, owned by one owner and an unlimited number of shareholders, that is a separate legal entity from the owner and the shareholders. LLCs need at least two people to be created. The owner of an LLC only gets taxed once and is not legally liable for any legal actions brought against the company. Shareholders are not liable for any legal actions brought against the company.

5. LOCAL ZONING LAWS

Check with your local zoning laws, also referred to as  ordinances, ordinances establish what business activities can be carried out in a particular municipality. You need to have approval, and any required permits from zoning, before setting up a business in a particular location including your home. In some areas zoning and planning, agencies require all home-based businesses to get a Home Occupation Permit.

6.LOCAL BUSINESS LICENSE And PERMITS

General Business License

As a business owner, you are normally required to purchase a yearly general business license. Contact your county clerk’s office for more information and/ or any other licenses or certificates you may be required to carry based on the type of business you are starting. If you plan to run a home business from a property you are renting you may also be required to get permission from your landlord to acknowledge he/she is aware of the fact that you are starting a home business on his/her premises.

Sales Tax Permit

If you intend to sell taxable goods or services online or offline, you may be required to collect state and local sales taxes from your customers. It is your responsibility to apply for a sales tax permit if the state where your business will be located charges a sales tax or levies a gross receipt or excise tax on businesses. Check with your State Revenue office for more information on your state requirements for collecting and submitting sales tax.

7. STATE BUSINESS REGISTRATION

Most States if not all, require you to register your business with your State Revenue Agency. State Revenue offices issue a variety of business permits/ licenses depending on the type of business you are starting and the needs of the business.

8. Open A Business Checking Account
A business bank account helps you stay legally compliant, organized and protected.

9. BOOKKEEPING

Setting up a good Bookkeeping system is a must! Keeping track of your business income and expenses will help you in the long run, to be prepared in case of an IRS audit and it will keep you compliant with the law.

10. FILE AND PAY TAXES

As a business owner, you are required to file and pay small business taxes including State, Local, and Federal. Check with your state and local officials for more information on the self-employment taxes you are required to file.

How to Reconcile The Gnucash Checking Account

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Reconciling your Gnucash account simply means you are matching the income and expense transactions you entered into  Gnucash against your business banking checking account for accuracy which is very important that everything you enter into Gnucash balances with your banking statements.

Double-checking, your records against your banking account transactions each month will give you a better understanding of your transactions such as uncashed checks and undeposited amounts owed to you from third parties. 

Gnucash can help you catch any discrepancies between your Gnucash business transactions data and your business banking account monthly statements.

CLICK ON THE BUTTON TO WATCH THE VIDEO – How To Reconcile Your Gnucash Checking Account

How to Manage A Business Credit Card Account In GnuCash

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Push The Button To Begin Lesson

In the tutorial, you will learn how to manage a credit card account in GnuCash to keep track of all your business credit card expenditures.

It is not uncommon to use a credit card for some of your business transactions after all a credit card account is like a short-term loan that comes in handy when you have a business, but then you .eventually have to pay back the money, often with interest.

Credit card transactions are a liability because it is money you owe. In GnuCash The purchases you make with a credit card are classified as expenses.

You have a couple of options when entering credit card transactions. The simplest method is to only track monthly payments to the credit card company.

This method only requires you have a checking account, a credit card liability account, and a credit card expense account.

The obvious limitation of this simple credit card setup is that you cannot see where your money is going. And since you are tracking business expenses you want to be as transparent as possible, when it comes down to your business expenses. If not for yourself for tax purposes.

How To Enter A Split Transaction in GnuCash

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Once you Apply the business settings the Save As Dialog Screen should appear. In this next step of the business accounts setup, you will name your accounting file and create a folder to hold the files.

This step is crucial because GnuCash generates a lot of files and if this step is not done properly, your files will end up outside of the folder intended to hold the business files and all mixed in with your files in your document folder. When done right your files will be saved and organized into the folder specifically created to hold your Gnucash files.

Entering A Simple Transaction in GnuCash

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Notes: The chart of accounts represents the different types of business expenses and income you can expect to encounter in the course of your business. For instance, the opening balance should be your very first entry. You only have to enter this transaction one time when you first start using GnuCash.

The opening balance should reflex the ending balance of your last business checking account statement or the newly deposited amount if you have just opened a new business checking account.

In Gnucash a transaction with only two splits is called a simple transaction., since it only involves the current account and a single chart of account. An example of two splits in the tutorial is with the opening balance transaction of the 500.00, the two splits involved are the checking account and the equity: opening balance.

Every transaction in GnuCash has at least two splits, but a transaction can have more than two splits. A transaction that involves three or more accounts is called a split transaction. The need for 3 or more splits in a transaction occurs when you need to split either the “from” or the “to” account into multiple transaction accounts.

The Importance Of The Accounting Period In Gnucash

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Before you begin using Gnucash it is a good idea to set your accounting period. Even before you begin a new business you are required by the IRS to select your accounting period for reporting profit and loss. For IRS purposes, a “tax year” is an annual specified period of time for keeping your business records and reporting income and expenses.

CLICK ON THE BUTTON TO WATCH THE VIDEO – The Gnucash Accounting Period When to Select Relative or Absolute

Two methods used for an accounting period and approved by the IRs are.

  • A Calendar year – 12 consecutive months beginning January 1 and ending December 31.
  • A fiscal year’ which does not start on Jan1 and necessarily end on Dec31.

Some businesses and organizations prefer to keep records based on a ‘fiscal year’. For most small businesses, their accounting period will be based on the calendar year, 12 consecutive months beginning January 1 and ending December 31.

By setting up your accounting period preferences in Gnucash you are in essence telling the system this is the Starting date and ending date I want to use for my business accounting profit/loss calculations and net assets calculations. This is so important in bookkeeping, that you are able to keep track of the business’s profit and loss and provide evidence to the IRS based on your annual accounting period.

Not only can Gnucash accounting period preferences be used to produce reports based on the dates you set, but it can also be used to generate specific date range reports. This can be helpful to you when you want to know how your business finances are doing based on a specific period of time.

How To Setup The Accounting Period

In Gnucash the preferences feature is used to set up your accounting method and period. To begin select Edit from the menu bar, and when the menu opens select preferences.

By default, the accounting period is the first option. You have two choices here Relative and Absolute, choose Relative if your business uses the calendar year accounting period. 12 consecutive months beginning January 1 and ending December 31. Pictured below are the stand settings for a calendar year accounting period.

Select Absolute if your business uses the fiscal year accounting period. Both Relative and Absolute uses the dates you specify as the starting date and the ending date for profit/loss calculations and net assets calculations. The only thing you would do differently if your business uses the fiscal year accounting period is select absolute instead of Relative and set the start and ending options and dates specific to your business accounting period.

Generating Reports

The accounting period is also used for financial reports in GnuCash. You can use the accounting period to generate reports based on a specified date range. To view a standard report based on the present relative accounting period settings. Select reports on the menu bar and when the menu opens, select Income and expense, and when the submenu opens select profit and loss.

Here you have the Profit and loss report based on the dates set in preferences for the Relative accounting period.

Tour Of The GnuCash Interface

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Each time you open GnuCash, you will find that the Tip of the Day screen pops up, ready and available to offer helpful tips about using the program: These helpful tips provide useful information for beginning users. To view more of the tips, click on next to continue viewing the tips. When you have finished Click Close to close out the Tip of the Day.

How to Setup The Chart of Accounts

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Now that the program has been installed it is time to set up the chart accounts. The chart of accounts, or what Gnucash refers to as the account tree is what you will use to keep track of your business income and expenses.

To begin, open the Gnucash program by clicking the Gnucash shortcut icon on your desktop. The program created the icon when you installed the program, as long as you left that option checked. If you don’t see the shortcut on your desktop look for the program in your windows start menu.

 

How to Install Gnucash on a Windows Computer

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Gnucash can be installed on a windows, mac computer or Linux desktop, or laptop.
GnuCash is also available for older operating systems such as Windows 7, Vista, XP, and earlier Mac operating systems as well the latest operating systems windows 8 and 10 and Apples High Sierra

Small Business Bookkeeping Getting Started

Posted on | by Laura

Small Business Bookkeeping is every aspiring entrepreneur’s sole responsibility! But, it doesn’t have to be a burden, with the right tools you can do it! It doesn’t matter if you are making money in self-employment full or part-time. It doesn’t matter if your business is a sole proprietorship, partnership, or corporation, the success of your business depends on creating and maintaining an effective record-keeping system.

For tax purposes, you are required to keep good accounting records suited to your particular business needs. What it all boils down to, is proper record-keeping for small businesses makes the process easier and keeps you compliant with the law. Good record-keeping is also about understanding your business, now and in the future.

Good records can also show whether your business is improving, which items are selling, or what changes you need to make to increase the likelihood of business success. You don’t need a license, degree, or experience to do your own bookkeeping.

Difference Between An Account And A Bookkeeper

Bookkeeping is the first part of the accounting process, so the work of a bookkeeper and accountant often overlaps. The difference between an Accountant and a Bookkeeper is an accountant is a professional who handles the bookkeeping and prepares financial documents like profit-and-loss statements, balance sheets, etc. They perform audits of your books, prepare reports for tax purposes, and handle all the financial information that’s part of running your business.

Bookkeeping focuses on recording and organizing financial data, while accounting is the interpretation and presentation of that data. With the use of computerized accounting systems, small business owners can do most of the work themselves and produce their own financial documents.

Your record-keeping system should include:

1. Detail Tracking

You are required to track a significant amount of information, such as customers, sales, inventory, and expenses. Without a proper record-keeping system, tracking important details of your business may be impossible and can lead to you paying far more taxes than you should have.

2. Legal Compliance

As an employer, you are required to maintain and report employee payroll for tax purposes.

3. Tax Preparation (Federal, State, and Local)

You need good records of your financial transactions to prepare your tax returns. Your records must support the income, expenses, and any credits you report. Which may be able to save you thousands of dollars.

Supporting documents you will need sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents.

Generally, these are the same records you use to monitor your business and prepare your financial statements.

The financial statement may include income (profit and loss) statements and balance sheets.

–An income statement shows the income and expenses of the business for a given period of time.

–A balance sheet shows the assets, liabilities, and equity in the business on a given date.

Manual Bookkeeping Vs Computerized Bookkeeping

With manual bookkeeping business accounting records are entered into a notebook or journal. You should have a little basic understanding of the types of small business accounts and then there are the Debits and Credits which are a part of The Accounting Equation. Transactions are entered using debits and credits, debits and credits can be the most confusing part of bookkeeping for beginners. You will also have to decide what accounting method you will use to enter your transactions.

Computerized Bookkeeping

Computer accounting software is ideal for handling your small business bookkeeping quickly and easily. If you are starting your first business, you will quickly find out how important accounting software is to the success of the business. You don’t have to worry about having extensive knowledge of accounting, because computers transfer the right numbers to the right accounts and make sure those numbers get put on the proper side of the account, the debit or the credit side.  

QuickBooks is the industry standard but some small businesses may find it costly when just starting out in business. GnuCash is a free open-source small business accounting software that may not have all the bells and whistles like QuickBooks, but it gets the job done and best of all it’s free.