Guide to Accounting Decisions for a New Business

The type of organization your business is.

Are you a sole proprietor or are you in business with someone else? Will you organize as a partnership or as a corporation? Limited liability companies are the newest form of entity – is this form right for your business? Choosing an organizational type will determine what federal and state income forms to file. For example, a corporation may need to file annual reports in the state of the incorporation.

I recommend: Most states allow you to file electronically now.  Find the website for your Secretary of State at Yahoo!.

The fiscal year of your business.

Most businesses use the calendar year, but that may not be the proper choice for your business. For tax purposes or seasonality, many businesses choose a different beginning and ending date than the January through December calendar year.

I recommend: Find a slow time of year for your business to do year end inventory and accounting. 

The accounting method for your business.

Are you going to use a cash or accrual method of accounting? The cash method is easier for startup companies, however, if you have inventory – the IRS may force you to use accrual.

I recommend: Get a good CPA to give you counsel on this decision.

The method of valuing inventory for your business.

Your banker may prefer one over the other.

I recommend: If you don't have a bank here is a good tutorial to help you find one.

Financial records for your business.

You have a lot of choices here! Are you going to use paper ledger sheets to record sales and purchases? Are you going to keep track of income and expense using a computer program? Some bookkeeping software has the ability to integrate your data with an accounting professional, thus saving you money. You will need to decide the best method for your business.

I recommend: Learn more about financial statements at the Accounting Aisle.