When you are starting your business handling accounting and compliance can be daunting. There are a few common mistakes that early stage businesses commit; of course with the right advice you can avoid these pitfalls. Part 1 of this blog looks at setting up your accounting system.
Open a Bank Account
It is best to open a current account for your business. This current account must be used to deposit all your sales income & paying all the business expenses. Of course there is a wide choice of banks to choose from, here are some factors to be kept in mind while choosing a bank account:
Bank charges: look at how much the bank charges for NEFT/RTGS, ATM Withdrawals, foreign currency receipts and payments, forex rates etc.
Minimum balance requirements: check the minimum balance requirements in the account. Also ease of operating the net banking must be checked.
Mobile banking: choose a bank which offers mobile banking. This will save you a lot of time.
Separate Your Finances
There needs to be separation between yourself and the business. The individual and the business are not necessarily the same. How this works will depend on your legal structure:
For Sole Traders/Owners: if you’re a self-employed sole trader then your business and personal money are one and the same, legally speaking. But to manage your accounts, it’s still essential to have two separate bank accounts and to keep detailed financial records.
For Companies: a company is a legal person separate from its shareholders & directors. Companies are required to have bank accounts in company’s name.
Accounting for business and personal money separately allows you to have the best possible overview of how the business is faring – and is vital for tax purposes.
Keeping Tax Records
One can never escape taxes, as a business you will have to pay tax. It is a legal requirement, under GST & Income Tax Law, to have books of accounts. How much tax you have to pay depends on your legal structure. So as a business you must:
Know your tax liabilities: which depends on the legal structure of your business. Tax rates are different for companies & individuals.
Digitise your records: Income Tax Law requires you to maintain records for a minimum of seven years. Similar requirements are there in the Companies Act as well. So it is prudent to digitize your records.
Pay Taxes on Time: by paying taxes on time you will avoid payment of penalty. Let our experts at Integra Books help you with taxes.
Choose Cloud Accounting Software
Put your accounting on the cloud. A good cloud accounting software has the following features:
Ease of Use
Integration with other Apps
Zoho Books is a cloud accounting software which ticks these requirements. Zoho Books integrates with a whole range of Zoho Apps and will put your entire business on the cloud.
You can read a related blog here. Stay tuned for Part 2.