How to Manage Your Startup's Accounting

This guest post is brought to you by Luke Frye. Luke is a Washington State CPA, Wyoming native, and was the first accountant at Bench. He's now co-founder of TimberTax, web-based tax services with a focus on entrepreneurs. He enjoys motorcycles, wine, and folk music.

Accounting, bookkeeping, and taxes can be a scary world, but it doesn’t have to be. With the evolution of technology that enables us to share what we’re up to with thousands of “friends” in real-time, those advances have also automated much of what needs to be done for your bookkeeping. There are some basic steps to take to set everything up that can make your life, and your accountant's life, much easier. You’ll want to talk to a CPA or other qualified accountant to be sure you’re set up properly as there is no one-size-fits-all approach, but here are the basics of banking, payments, bookkeeping, and taxes.

Set up Your Banking

The first thing you should do after you incorporate and get an EIN from the IRS is set up a separate bank account for your business. If you don’t, you’re at risk for “piercing the corporate veil” — in other words — defeating the purpose of setting up the separate entity. It’s a good practice to have a separate operating account, but you likely won’t be able to open a separate corporate credit card without personally signing for it. Once your company has its own credit history, you may be able to skip that step. It’s best to pick a bank that has advanced online banking and connectivity. This will help you automate your bookkeeping and document management (including retrieving your statements).

Organize Your Payroll

Gusto is quickly becoming the standard for most small and growing companies. They have excellent support and work well if you have employees in one location. They automate your onboarding and payments including to state and federal agencies for taxes. If you need multi-state support or more robust benefits management, you may want to consider JustWorks, Zenefits, or ADP. Running your own payroll through Xero, Wave, or QBO is a more manual process and generally requires more setup on your part.

Keep Documents In Order

You need to be saving your bank statements, credit card statements, and receipts for anything you may need to prove in an audit. More likely than not, you’ll end up closing the bank account and need those statements. Moreover, reconciliations in any web-based software still require verifying the balances shown on the pdfs. Automated feeds are not yet flawless. You should also be saving all of your permanent files including your articles of formation, EIN, tax filings, business licenses, all in one place. Use Dropbox or Google Drive. This will enable you to access this wherever you have internet and easily share. Fires, floods, theft, forgotten passwords and fading all lead to lost documents. Prepare and you won’t be in a panic for these documents if any of those things happen.

Automate Your Doc Collection

If you want to step up your game and are willing to shell out a modest monthly fee, you can automate your statement collection with FileThis, or your receipt management and data entry with ReciptBank. If you’re looking to combine the two, Hubdoc is a great option as well. These can also be connected to your bookkeeping software to automatically push documents and do the heavy lifting for categorizing expenses for you.

Expenses & Reimbursements

Like any new business, you probably spent money out of your own pocket for the business. Make sure you’re tracking those expenses and getting credit for them. If this is minimal (less than 5 per month) you may not need a separate software, but once it goes over that, or you have multiple people submitting for reimbursement, you’ll want to get a software set up like Expensify to manage all these. Be sure you clearly document whether these expenses are to be reimbursed or purely a contribution from you to the company. It’s best to do these reports monthly and pay out on a regular schedule.

Get Ready for Tax Season

Most startups are C-Corps, and you should know your federal income tax return, form 1120, is due April 15th, unless there’s a holiday or weekend. If you’re making money, you’ll also want to consider setting up quarterly estimates on the 15th of April, June, September, and January for Q1, 2, 3 and 4 respectively. Also, if you aren’t using an automated service like Gusto, you’ll need to figure out how often to remit payroll taxes. If you’re selling something that is subject to sales tax, consider checking out TaxJar. You’ll also have some sort of an annual franchise tax or fee with the state you are incorporated in. Delaware is due March 1 for example and is entirely separate from your income tax filing.

Working with a CPA is a best practice to ensure you are on top of all these deadlines and filings. The tax code is constantly changing, and you’re better off spending your time figuring out how to launch and scale your startup, not deciphering the tax code and regulations.

To review, make sure you’ve set up separate bank accounts and are using them, figure out how to get paid (avoid receivables, checks, and cash if you can), set up a bookkeeping system, work with a payroll provider if you have employees, and set up a process for your expense reimbursements. Be sure to set reminders or calendar notifications for important tax deadlines. Don’t let the fear or tedium of accounting cause a train wreck that could put you out of business. Find an advocate who can help you through this, or expect to spend considerable time setting systems up. Typically, you should at least have a CPA.