PART 2: Accounting Basics Every Startup Needs to Track

If you’re not sure whether something needs to be tracked, err on the side of caution and assume that it does. In all cases, the following financial items need to be properly managed.

“If you’re not sure whether something needs to be tracked, err on the side of caution and assume that it does.”

1. Startup costs

If your business is brand-new, make sure to track all of your startup expenses because, according to the IRS, you may be able to deduct up to $5,000 in startup and organizational costs in the year that your business becomes operational. Any costs exceeding the deduction will need to be amortized.

2. Payments received

Anytime a customer pays you is a reason to celebrate. Make sure that payments received from your customers are adequately tracked, whether they pay by check, cash, credit card, PayPal, or via ACH transfer. Whenever a customer pays, a record of that payment should be attached to their invoice and filed. If you’re ahead of the curve and using a paperless office, just save a record of the payment to their file.

3. Bills

As a new business, you must establish good credit with your vendors from the start. That means paying your bills when they’re due. But be sure to examine each bill that comes in to make sure that it’s accurate. It’s easier than you may think to pay an incorrect bill, so don’t let that happen.

After entering your bills in accounts payable, track them weekly to make sure that they’re paid on time. If they’re not, you’ll likely have to pay late fees, interest charges, or both.

You’ll also want to keep track of those smaller expenses such as parking fees, postage, printing, and mileage. Tracking business expenses properly will make sure that your year-end deductions are accurate and that you have the documentation to prove it.

4. Tax returns

If you’re a brand-new business, chances are you don’t have any tax returns yet. However, once you do, those returns must be filed away and kept for at least three years, although it may be a good idea to keep them longer.

5. Financial statements

You should be printing a set of financial statements monthly or quarterly, depending on your business. Using accounting software, running financial statements takes less than a minute, but the details in those reports can tell you a lot about your business.

If you maintain month-end closing financial statements, your bank reconciliation should be included with the financial statements to make sure that your general ledger balance and bank balance match.