Accounting Compliance Checklist for New Businesses
Accounting + Bookkeeping + AI The Trifecta for Smarter Financial Decision-Making
In the age of fast business, staying in control of your finances is not just about number-crunching. It’s about making savvy, strategic decisions that drive growth and that’s where the powerful pair of accounting, bookkeeping and AI in accounting and finance step in.
When starting a new company, you have your hands full developing your products, marketing, hiring employees, and growing your business; however, there is one area of your startup you cannot forget: compliance with accounting regulations. Although you could be starting a small business or a large venture-backed startup, the financial practices you implement now will be the foundation for your company’s future growth and viability.
Here is a complete accounting compliance checklist that outlines everything you need to record, manage, and submit to remain compliant starting on day one.
Create a Business Plan.
The foundation of a business plan serves as a roadmap for your business’s journey. It highlights the points along the way that you want to get to, and it tells how you will get to those points.
Besides keeping you focused on your goals, the business plan will also be the record of all your efforts and victories along the way.
The business plan ought to summarize:
- A brief overview of your business, the possible market, and the sales strategy for your products/services.
- Rival firms’ assessment
- Your entrepreneurial venture’s operational plan: the nature of the good or service, location of production, and timing of production.
A monetary strategy indicating the investment required for your start-up and the time frame for reaching the break-even point, which is critical to determine the adequacy of the funding support.
Tip: Work with a skilled business plan writer so that you can be sure to implement the best practices while formulating your business plan.
Register for Necessary Tax IDs and Permits
Every beginner business must guarantee it is appropriately registered at the federal, state, and local levels.
Important compliance activities consist of:
- Acquire an Employer Identification Number (EIN)
- Enroll for state and local business licenses
- Request for resale permits or sales tax permits (if relevant)
- Confirm industry-specific licenses (food, retail, healthcare, construction, etc.)
If you do not register, you will face fines and possibly be forced to cease operations, so it is important to include this step in any accounting compliance checklist, as it is very crucial.
Set Up a Dedicated Business Bank Account
The confusion of mixing up personal and business finances is one of the most common problems for newly established businesses. It causes a loss of trust and makes things harder in terms of regulations.
You need to:
- Open a business checking account,
- Use a dedicated business credit card,
- Connect your banking with your accounting software,
- Have clear reimbursement policies.
This division is necessary for correct bookkeeping, the creation of records that can withstand an audit, and gaining legal protection.
Implement Accounting Software from the First Day
The very basis of financial compliance is the precise tracking of all financial transactions. The use of manual spreadsheets to do so, on the other hand, will result in errors and loss of documents.
Platforms that are recommended:
- QuickBooks,
- Xero,
- Zoho Books,
Comprehensive accounting software will enable you to:
- Monitor both incomes and expenses,
- Prepare financial statements,
- Carry out invoicing and payroll activities automatically,
- Keep receipts and other documents in one place,
- Get ready for the tax man.
It is the same as starting with digital tools to save a lot of time spent on administration and reduce the risk of non-compliance to a minimum.
Establish a Chart of Accounts
A chart of accounts, which is well-organized (COA) will be very helpful in terms of your financial reporting. It will make your reporting clean, consistent, and compliant.
- The different revenue streams should be the first item in your COA that you will separate.
- The next item is the cost of goods sold, which should also be separated.
- Then come the operating expenses.
- After that, there come the assets, which include cash, inventory, and equipment.
- The items under liabilities would then include loans, credit cards, and taxes payable.
- Equity accounts would be the last item on your list of COA.
The adoption of such a structured COA will certainly promote and improve the financial clarity of the business, and at the same time, it will also support accurate tax filings.
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Track All Income and Expenses Accurately
The new start-up businesses composing the financial records in detail and keeping them correctly will be able to demonstrate compliance and, at the same time, be audit ready.
Your system must consist of:
- Revenue and sales
- Payments to vendors
- Employee and contractor expenses
- Subscriptions and software tools
- Purchases of inventory
Regular bookkeeping (every week or every two weeks) ensures that the data is accurate and up-to-date.
Maintain Proper Payroll Compliance
Payroll is one of the most complicated areas in business accounting from a legal point of view.
To be sure you are complying, do the following:
- Classify employees and contractors the correct way
- Deduct the correct amount of payroll taxes for each employee
- Submit payroll tax returns punctually
- Send out W-2s and 1099s to the recipients by the deadline
- Account for employee benefits and deductions correctly
Calculating the payroll tax incorrectly can create a huge problem for a business, and in cases of tax penalties, such penalties are usually heavy for newcomers.
Monitor Sales Tax Obligations
In case your business is dealing in selling products or providing certain services, you may have to collect and remit sales tax.
The requirements to stay compliant include:
- Identifying nexus (the place where you are obliged to collect tax)
- Applying for state sales tax permits
- Collecting from the customers at the right rate
- Submitting sales tax returns monthly, quarterly, or annually
- Maintaining records of sales made and the respective tax status (taxable vs. non-taxable)
Automation has made the task of compliance much easier than before with the help of software like TaxJar, Avalara, or Stripe Tax which, in fact, is a very small cost for a small business.
Maintain Accurate Financial Statements
The demand for lucid financial statements comes from investors, lenders, and tax authorities. To ensure compliance, be sure to keep the following documents without fail:
- Income Statement (Profit & Loss)
- Balance Sheet
- Cash Flow Statement
These papers are the legal requirement for many businesses; they indicate the financial status of the company and assist in the conduct of forecasting.
Reconcile Accounts Monthly
The regular monthly reconciliation is a great way to get the assurance that your accounting books are in line with the actual activities of the bank.
Reconcile:
- Bank accounts
- Credit card transactions
- Payment processor records (Stripe, PayPal, Square)
- Loan statements
If you do not reconcile, the errors will pile up quietly, leading to inaccurate reports and compliance issues.
Understand Your Tax Obligations
Taxes are one of the key legal requirements that start-up businesses have to meet. The tax requirements that can be included are:
- Income Tax at the Federal Level
- State Income Tax
- Tax on Wages of Employees
- Tax on Sales
- Taxes on Specific Industries or Products
Keep these tips in mind to remain compliant:
- Make quarterly estimated tax payments
- Monitor and document tax-deductible business expenses
- Have a systematic record-keeping for receipts based on being audit-ready
- Seek the help of a tax professional in case of a tricky industry
Besides avoiding potential fines, good tax management will also contribute to the company’s future growth.
Prepare for Annual Filings and Audits
Every business, irrespective of its size, is required to do annual filing.
- Tax returns and reports to the government are among these responsibilities.
- State tax and franchise tax returns, Contractor 1099 forms, etc.
- If necessary, the company could also have a financial statement review or audit done.
Final Thoughts
Having an accounting compliance checklist is a great tool for every start-up because it ensures that the company has a sturdy financial base, does not incur expensive fines, and is still a reliable partner in the eyes of investors and customers. Founders can dedicate their time to being creative, while the financial struggles take less of their time and energy.
