If you’ve just launched or are about to launch your online store, congratulations! It takes uncommon passion and perseverance to get to where you are today.

However, as you know, business ownership is a constant flood of satisfying milestones coupled with expanding to-do lists. With your launch, you’ll need to get on top of the accounting tasks that come along with owning a store.

This list of small business accounting steps will give you the confidence to know you’ve covered your bases and are ready to move on to the next item on your business to-do list.

1. Open a bank account

After you’ve legally registered your business, you’ll need somewhere to stash your business income. Having a separate bank account keeps records distinct and will make accounting easier come tax time. It also protects your personal assets in the unfortunate case of bankruptcy, lawsuits, or audits. And if you want funding down the line, from creditors and investors alike, strong business financial records can increase the likelihood of approvals.

Note that LLCs, partnerships, and corporations are legally required to have a separate bank account for business. Sole proprietors don’t legally need a separate account, but it’s recommended.

Start by opening a business checking account, followed by any savings accounts that will help you organize funds and plan for taxes. For accounting, set up a savings account and squirrel away a percentage of each payment as your self-employed tax withholding. A good rule of thumb is to put 25% of your income aside, though more conservative estimates for high earners might be closer to one third.

Next, you’ll want to consider a business credit card to start building credit. Credit is important for securing funding in the future. Corporations and LLCs are required to use a separate credit card to avoid commingling personal and business assets.

Before you talk to a bank about opening an account, do your homework. Shop around for business accounts and compare fee structures. Most business checking accounts have higher fees than personal banking, so pay close attention to what you’ll owe.

2. Track your expenses

The foundation of solid business bookkeeping is effective and accurate expense tracking. It’s a crucial step that allows you to monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and legitimize your filings.

From the start, establish a system for organizing receipts and other important records. This process can be simple and old school. For American store owners, the IRS doesn’t require you to keep receipts for expenses under $75, but it’s a good habit, nonetheless.

To open a business bank account, you’ll need a business name, and you might have to be registered with your state or province. Check with the individual bank for which documents to bring to the appointment.

Starting your business at home is a great way to keep overhead low, plus you’ll qualify for some unique tax breaks. You can deduct the portion of your home that’s used for business, as well as your home internet, cell phone, and transportation to and from work sites and for business errands.

Any expense that’s used partly for personal use and partly for business must reflect that mixed use. For instance, if you have one cell phone, you can deduct the percentage you use the device for business. Gas mileage costs are 100% deductible, just be sure to hold on to all records and keep a log of your business miles (where you’re going and the purpose of the trip).

3. Develop a bookkeeping system

Before we jump into establishing a bookkeeping system, it’s helpful to understand exactly what bookkeeping is and how it differs from accounting. Bookkeeping is the day-to-day process of recording transactions, categorizing them, and reconciling bank statements.

Accounting is a high-level process that looks at business progress and makes sense of the data compiled by the bookkeeper by building financial statements. As a new business owner, you’ll need to determine how you want to manage your books:

You can choose to go the DIY route and use software like Quickbooks. Alternatively, you could use a simple Excel spreadsheet.

You have the option of using an outsourced or part-time bookkeeper that’s either local or cloud based.

When your business is big enough you can hire an in-house bookkeeper and/or accountant for accounting.

With so many options out there, you’re sure to find a bookkeeping solution that will suit your needs.

4. Set up a payroll system

Many online stores start out as a one-person show. When you’ve reached the point where it makes sense to hire outside help, you need to establish whether that individual is an employee or an independent contractor.

For employees, you’ll have to set up a payroll schedule and ensure you’re withholding the correct taxes. There are lots of services that can help with this, and many accounting software options offer payroll as a feature.

For independent contractors, be sure to track how much you’re paying each person. American business owners may be required to file 1099s for each contractor at year end (you’ll also need to keep their name and address on file for this).

5. Investigate import tax

Depending on your business model, you may be planning to purchase and import goods from other countries to sell in your store. When importing products, you’ll likely be subject to taxes and duties, which is worth noting if you run a drop shipping business. These are the fees your country imposes on incoming goods. Learn about importing goods into the US and Canada, and the associated taxes, so you know the rules from the get-go.

Also, if you’re importing goods, a duty calculator can help you estimate the fees in your own business and plan for costs.

6. Determine how you’ll get paid

When sales start rolling in, you’ll need a way to accept payments. If you’re a North American store owner on Shopify, you can use Shopify Payments to accept credit card payments. This saves you the hassle of setting up a merchant account or third-party payment gateway.

If you want to accept credit card payments without using Shopify Payments, you’ll either need a merchant account or you can use a third-party payment processor like PayPal, Stripe, or Square. A merchant account is a type of bank account that allows your business to accept credit card payments from customers.

If you use a third-party payment processor, fees vary. Some processors charge an interchange plus rate, typically around 2.9% + $0.30 per transaction. Others charge flat fees for each transaction, while some have a monthly membership model for unlimited transactions.

7. Establish sales tax procedures

The world of ecommerce has made it easier than ever to sell to customers outside of your state and even country. While this is a great opportunity for brands with growth goals, it introduces confusing sales tax regulations.

When a customer walks into a brick and mortar retail store, they pay the sales tax of whatever state or province they make the purchase in, no matter if they live in that city or they’re visiting from somewhere around the world. However, when you sell online, customers may be in different cities, states, provinces, and even countries.

8. Determine your tax obligations

Tax obligations vary depending on the legal structure of the business. If you’re self-employed (sole proprietorship, LLC, partnership), you’ll claim business income on your personal tax return. Corporations, on the other hand, are separate tax entities and are taxed independently from owners. Your income from the corporation is taxed as an employee.

Self-employed people need to withhold taxes from their income and remit them to the government in lieu of the withholding that an employer would normally conduct. For American store owners, you’ll need to pay estimated quarterly taxes if you’ll owe more than $1,000 in taxes this year. Canadians have it a little easier; if your net tax owing is more than $3,000, you’ll be required to pay your income tax in installments.

9. Calculate gross margin

Improving your store’s gross margin is the first step toward earning more income overall. In order to calculate gross margin, you need to know the costs incurred to produce your product. To understand this better, let’s quickly define both cost of goods sold (COGS) and gross margin.

COGS. These are the direct costs incurred in producing products sold by a company. This includes both materials and direct labor costs.

Gross margin. This number represents the total sales revenue that’s kept after the business incurs all direct costs to produce the product or service.

10. Periodically re-evaluate your methods

When you first start out you may opt to use a simple spreadsheet to manage your books, but as you grow, you’ll want to consider more advanced methods. As you keep growing, continually reassess the amount of time you’re spending on your books and how much that time is costing your business.

The right bookkeeping solution means you can invest more time in the business with bookkeeping no longer on your plate and potentially save the business money. Win-win!

See Also: Filing Business Back Tax Returns In 2021 – A Complete Guide

Starting a business can be an overwhelming process, but if you follow this list, you’ll have your new store’s finances in order from the beginning. From opening the right type of bank account to determining how much you’ll bring in per product, these tasks will all contribute to your business’s success, now and as it grows.

Nida Bohunr

A highly skilled accounting professional at Monily, having extensive and diverse experience of working in US healthcare and agriculture industry. Nida is a CA finalist with expertise in Bookkeeping, Auditing, Bank Liaison, Tax Preparation, Accounts Payable, Accounts Receivable.