We’ve all only just finished going a bit crazy about getting our taxes filed. But when you’ve got a company to think about, tax season can be even more stressful — the only way to avoid going a little crazy is to get it right from the beginning.
Typically a startup doesn’t have any money to worry about until the founders land an investor, making it easy to ignore taxes and other finances until you’re trying to put together numbers for those same investors. Then you can wind up with that same under-the-gun feeling that you get when you’re trying to do your tax return.
Separate Out Startup Expenses
Especially if you’re bootstrapping your new company, you may be drawing on your personal account for business expenses. This can be a tax problem: the best case scenario is that you’ll have trouble sorting out what’s deductible on your taxes next April. The worst case scenario is that you’ll wind up with lawsuit where your personal assets are fair game because you haven’t maintained corporate finances correctly. Not to scare you, but this can be a big deal.
If you can, open a bank account in the business’ name. If you’re making a purchase for your startup, it goes through that account. If you’ve got income for the company, it goes into that account. If you can’t open an account for the business, choose one credit card that will be used for all company purchases, but for nothing else.
Automate Bookkeeping ASAP
When you’re founding a startup, you should be spending as much time as you physically can actually building the concept you have into something real. Unfortunately, that doesn’t mean that you can completely ignore bookkeeping. It has to get done somehow. There are a couple of different options: You can hire a part-time bookkeeper and pay her to deal with anything that needs to be done. You can use a piece of software that can suck down all of your transactions from your bank or your credit card. You can also handle your books by hand, but it’s going to be tough to keep up with even when things are going perfectly.
Connect with a CPA
You may not need an accountant to sort out your finances the first day that you open the doors to your new company. But a CPA can do a lot in terms of advising you about the incorporation process and any special steps you’ll need to take for your taxes. Make sure that you’ve at least connected with a CPA as early as possible in the startup process.
You’ll probably need to spend a little money to do each of these steps. But consider it an investment of your own into your company. Each of these steps will help you ensure that you don’t get tied up in a dispute with the IRS or that you’ll have a problem showing a potential investor how money is handled in your startup.
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