You’re about to launch your online store (or maybe you just launched) – congratulations! It takes perseverance and passion to get to the point you’re at. However, as you know, business ownership is a constant flood of satisfying milestones coupled with expanding to-do lists. With your launch, you’ll need to get on top of the accounting tasks that come along with owning a store. This list of 10 small business accounting steps will give you the confidence to know you’ve covered your bases, and are ready to move on to the next item on your business to-do list!
1. Open a Bank Account
After you’ve legally registered your business, you’ll need somewhere to stash your business income. Having a separate bank account keeps records distinct and will make life easier come tax time. Note that Ltds, partnerships, and corporations are legally required to have a separate bank account for business. Sole proprietors don’t legally need a separate account, but it’s definitely recommended for your business success.Start by opening up a business current account, and then any savings accounts that will help you organize funds and plan for taxes. For instance, set up a savings account and squirrel away a percentage of each payment as your self-employed tax withholding. Next you’ll want to consider a business credit card to start building business credit. Corporations and Ltds are required to use a separate credit card to avoid commingling personal and business assets.
Before you talk to a bank about opening an account, do your homework. Shop around for business accounts and compare fee structures. Most business current accounts have fees that are higher than personal banking, so pay close attention to what you’ll owe.
In order to open a business bank account, you’re required to have a business name, and usually be registered with the Corporate Affairs Commission, have a Tax Identification Number. Check with the individual bank for what documents to bring to the appointment.
2. Track Your Expenses
The foundation of solid business record keeping is learning to track your expenses effectively. It’s a crucial step that allows you to monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and support what you report on your tax return.Right from the beginning, you should establish a system for organizing receipts and other important records. This process can be simple and old school (bring on the FlatFile), or you can use a reliable accounting service software. The Lagos IRS and Federal IRS requires you to make monthly tax remittances which will only be possible if your records are intact.
There are five types of receipts that you should pay extra attention to:
- Meals and Entertainment: Conducting a business meeting in a cafe or restaurant is a great option, just be sure to document it well. On the back of the receipt, record who attended and the purpose of the meal or outing.
- Out of Town Business Travel: The tax bodies Lagos and Federal IRS are wary of people claiming personal activities as business expenses. Thankfully, your receipts also provide a paper trail of your business activities while away.
- Vehicle Related Expenses: Record where, when, and why you used the vehicle for business, and then apply the percentage of use to vehicle related expenses.
- Receipts for Gifts: For gifts like tickets to a concert, it matters whether the gift giver goes to the event with the recipient. If they do, then the expense would be categorized as entertainment, rather than a gift. Note these details on the receipt.
- Home Office Receipts: Similar to the vehicle expenses, you need to calculate what percentage of your home is used for business and then apply that percentage to home related expenses.
3. Develop a Bookkeeping System
Before we jump into establishing a bookkeeping system, it’s helpful to understand exactly what bookkeeping is, and how it differs from accounting. Bookkeeping is the day-to-day process of recording transactions, categorizing them, and reconciling bank statements.Accounting is a high level process that looks at business progress and makes sense of the data compiled by the bookkeeper by building financial statements.
As a new business owner, you’ll need to determine which bookkeeping method to use:
- You can choose to go the DIY route and use software like Quickbooks or Wave. Alternatively, you could use a simple Excel spreadsheet.
- You have the option of using an outsourced or part-time bookkeeper that’s either local or cloud-based like Bench Accounting.
- When your business is big enough you can opt to hire an in-house bookkeeper and/or accountant.
Canadian and American business owners need to determine whether they’ll use the cash or accrual method of accounting. Let’s take a look at the difference between the two methods here:
- Cash Method: Revenues and expenses are recognized at the time they are actually received or paid.
- Accrual Method: Revenues and expenses are recognized when the transaction occurs (even if the cash isn’t in or out of the bank yet) and requires tracking receivables and payables.
American business owners can use cash based accounting if revenues are under USD $5M, otherwise they must use the accrual method.
Nigerian businesses are advised to use the cash method for easy operations while other receivables and payable can be recorded separately.
4. Set up a Payroll System
As a new online store owner, you’ll likely be a one-person show. However, maybe you’ll hire a part-time employee to help you out, or a freelancer to design your logo. Right away, you need to establish whether that individual is an employee or an independent contractor. For employees, you’ll need to decide on a payroll schedule and ensure that you’re withholding the correct taxes; there are lots of services that can help with this. For independent contractors, be sure to track how much you’re paying each person. You’ll also need to keep their name and address on file for this!.5. Investigate Import Tax
Depending on your business model, you may be planning to purchase and import goods from other countries to sell in your store. When importing products, you’ll likely be subject to taxes and duties. These are fees that your country imposes on incoming goods. Take the time to learn about importing goods from the US, China and Canada, and the associated taxes, so that you know the rules from the get-go. Also, if you are importing goods, the Duty Calculator can help you estimate the fees in your own business and plan for costs. Check out these additional articles on importing from Canada and the US if you have any more questions.6. Determine How You’ll Get Paid
When sales start rolling in, you’ll need a way to accept the payments. If you’re a store owner on Jumia.com, you can use Jumia Payments to accept credit card payments (Visa and Mastercard). This saves you the hassle of setting up a merchant account or third party payment gateway.If you want to accept credit card payments without using Jumia Payments, you’ll either need a merchant account or you can use a third party payment processor like PayPal. A merchant account is a type of bank account that allows your business to accept credit card payments from customers. If you use a third party payment processor, the fees are generally around 2.9% + $0.30 per transaction. You can consult this list to help you find a payment gateway that will work for your location. Cash on delivery and bank payments are other options for receiving payments.
To be continued
Starting a business can be an overwhelming process, but if you follow this list, you’ll have your new store’s finances in order from the beginning. From opening the right type of bank account to determining how much you’ll bring in per product, these tasks will all contribute to your business’s success, now and as it grows.
About the Author: This post is adapted from origin by Bench, the online bookkeeping service that pairs you with a professional bookkeeper and uses simple, elegant software to do your books for you.
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