New Business Accounting Checklist

The first step in any new business checklist is to understand what accounting is and why it matters. Founders without a business background usually need to sign up for a fundamental accounting course or hire a trained finance professional.

It’s critical to understand the two different methods of accounting and how they impact your business’s financial reporting. It’s also important to become intimately familiar with the three basic financial statements. Every business decision you make will require understanding and using these statements. You’ll use them to create budgets, forecast financial performance, and model different scenarios. Financial ratios such as operating margin, debt-to-equity ratio, and return on assets help you further understand the health of your business.

One of the easiest ways to stay in compliance is to open a separate bank account and credit or debit card for all business transactions. Check with your local bank to see what documents you need. You usually need to bring your articles of incorporation or organization, employer identification number (EIN), and personal identification.

Once you’ve created a separate account, it’s time to purchase bookkeeping software customized for small businesses. Load all of your previous bank transactions, set up your chart of accounts, and start categorizing transactions. Make sure to have a CPA or tax advisor check any transactions you don’t understand. Never, ever “guess” when it comes to accounting issues. Those mistakes can lead to hefty fines from state or federal agencies.

Your software will let you produce and review your financial statements. Compare the results to past periods and to your budget targets. Use these numbers to enhance financial forecasts and communicate performance to management and investors.

You also need to be prepared for an audit, so keep your records organized and up to date. This makes the audit process easier and less intrusive.

Payroll can be tricky, especially when it comes to finding the right labor classification for your hires. Every new business checklist should include reading through the IRS 20 Factor test for guidance. Once you’ve classified your labor force, collect a W9 from contractors and federal and state W4’s from employees.

You also need to choose a payroll provider, set a payment frequency, and register with the appropriate tax jurisdictions. Any employee benefits need to be recognized by payroll since they will be taxed as well.

You’re also bound by state labor laws and workers’ compensation requirements. Each employee will need to receive a W-2 and contractors earning over $600 will receive a 1099 so they can file their taxes.