Ten Part Series on Starting a Business - Part 8

Bookkeeping, Budgeting, Accounting, and Finances

New business owners will have varying skills with regards to accounting, bookkeeping, budgeting and finances, but will likely require help at some level to make sure the business is keeping appropriate records and correctly tracking income and expenses.  Today’s software makes this easier than ever, but it is vital for the business owner(s) to have at least a basic understanding of accounting principles, even if they have someone else keeping the books.  Taking a class or two will be well worth the time and expense when it comes time to set up your books and organizational system, and when preparing to provide your accountant with what they need to prepare your taxes (or to prepare them yourself).

There are no particular rules for how you organize your financial records, but the more organized you are:

·        the more easily you will be able to find what you need when you need it

·        the more likely you will know where your business stands financially

·        the easier (and less expensive) it will be for your accountant to prepare your taxes, including finding all applicable deductions

·        the easier it will be if you are audited

Be sure to:

·        Keep receipts or proof of all expenses

·        Keep track of all income

·        Decide which accounting method you will use (cash or accrual), and make sure all entries are recorded according to that method

·        Record everything in a timely manner

Also, become reasonably knowledgeable with the following terms and processes:

Accounting

Bookkeeping

Invoices vs. Statements

Receipts

Accounts Payable

Accounts Receivable

Taxable vs. Non-taxable Sales

Profit and Loss Statement

Balance Sheet

Cash Flow

Accounting and finances do not have to be daunting, but it does pay to do your homework and keep careful records.

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Kim Luedke is Co-owner of ProfessionalEdge Associates, offering a wide range of marketing and support services to businesses that want to increase their success, but aren't in a position to add to their staff.

Ten Part Series on Starting a Business - Part 7

Contracts and Agreements

As a business owner, you will no doubt require contracts and agreements from time to time with customers, suppliers, landlords, sub-contractors, and others.  Though some contracts, particularly with government agencies, can make you a little crazy with legalese and sometimes strange requirements, many contracts can be simple and straight-forward. 

In order to be valid, contracts must contain the following ingredients:

1.      Parties must be in agreement

2.      Something of value is offered and accepted

3.      Usually the contract is in writing.  Though oral contracts are possible, in business it is often smarter to make sure everything agreed to is in writing in order to protect all involved parties.

Though the word contract conjures up weird legal language in our minds, legalese is not a requirement.  Do make sure that the agreement is clear and as specific as possible as to what each party is expected to do in order to fulfill their duties under the terms of the agreement. 

Agreements will include the thing of value for the offer.  For example, a contract for website design might offer a complete website for “x” amount of dollars.  A barter agreement may offer housecleaning in exchange for room and board. 

How to begin?  Many standard contracts are available on the internet, at the library, in office-supply stores, and in many other places.  Modify it according to the needs of the specific agreement.

Be sure to include the following:

·        A title or something that shows clearly and concisely the use of the contract.

·        Names and addresses of the parties involved in the contract.

·        What each party will do under the terms of the contract

·        What will be exchanged (i.e. money for services provided)

·        Payment arrangements

·        Warranties, and how breach of contracts will be addressed, including which state’s laws will apply

·        Whether or not the contract may be transferred

·        The term of the contract

·        A termination clause, if appropriate

·        Signatures and dates

It pays to be thorough when writing a contract.  The more all parties are clear as to their responsibilities in a contract, the less likely any conflict will ensue. 

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Kim Luedke is Co-owner of ProfessionalEdge Associates, offering a wide range of marketing and support services to businesses that want to increase their success, but aren't in a position to add to their staff.

Ten Part Series on Starting a Business - Part 6

Taxes

Business taxes, like your personal taxes, are a necessary evil.  Business tax requirements vary greatly depending on the state, county, and city in which your business is located.  While we can’t cover even a fraction of what you will need to know about your business taxes, here are some basics.

Taxes are typically levied by the Federal government, your state government, and your local government – city or county or both.  The Federal government of course works via the IRS, and collects taxes on corporate and individual income.  States typically collect taxes on business income, sales, and payroll.  Cities and/or counties can collect any number of things, including property, gross receipts or payroll, sales, etc.

Just like with your personal income taxes, the prime goal of business taxes is to keep as much income as possible by using as many legitimate deductions as possible.  To keep out of trouble, it is important to know which deductions are actually legitimate, and know that the rules change from year to year. 

It is important to know that when you own a business, your personal income taxes will be handled differently than when you worked for a company that took care of them for you.  And requirements are very different depending on your business structure (see the second blog in this series for more information on business structures).  Income, expenses, and reporting structure will vary according to whether you are a sole proprietor, a partnership, or a corporation, and it is important to know what you need to do in each situation. 

The most important thing to remember is that there is no logic in the tax system, and there is little use in trying to find some.  Suffice it to say that you will be taxed in a number of ways, and unless you are a tax specialist yourself, you will be wise to consult someone who is.  Ask friends and colleagues for recommendations on a good accountant, and meet with several until you find someone you like and trust. 

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Kim Luedke is Co-owner of ProfessionalEdge Associates, offering a wide range of marketing and support services to businesses that want to increase their success, but aren't in a position to add to their staff.