Do’s and Don’ts in a Business Transaction
Regardless of whether your business sells a product or service, you will need to conduct frequent business transactions. Examples of financial models include:
- Retail to Customer (in person, online, & by mail)
- Business to Business
- Wholesaler to Retail
- Wholesale to Consumer
- Consumer to Consumer
Your business model determines the specific policies you use for business transactions. However, there are some do’s and don’ts regarding business transactions that all business owners should know before starting a business.
Five Important Things to Know About Business Transactions
- Do Separate Personal and Business Accounts
You need a separate bank account for your business transactions, even if you are a sole proprietor. While a sole proprietor is not under a legal obligation to use a separate business account, it is strongly recommended. A business entity (LLC, partnership, corporation, etc.) should always have one or more business accounts. A business account keeps your personal and business finances separate, which can make it much easier to prepare tax returns.
Open your business bank account before transacting any business. By shopping around, you can find a bank that offers the best fee structure and benefits for businesses.
- Do Establish a Bookkeeping System
You need a bookkeeping system for tracking and documenting business transactions. Your bookkeeping system will be basedon a cash method or accrual method. The cash method records expenses and income at the actual time money ispaid or received. An accrual method records expenses and income as of the date of the transactions. With an accrual method, you will need to track accounts payable and accounts receivable.
Bookkeeping is a vital component of a successful business. Many entrepreneurs choose to hire an in-house bookkeeper or accountant while other business owners outsource these services. Of course, you also have the DIY choice for bookkeeping. However, you must stay on top of your bookkeeping, oryour business could suffer.
- Don’t Forget to Track Your Expenses Carefully
Tracking your expenses is essential for you to monitor the growth of your business as well as preparing financial statements and tax returns. Establishing a system for organizing and recording receipts, invoices, and other documentation for expenses is crucial. Even though you may not be required to retain receipts or other documentation for small expenses, it is better for your business to get into the habit of documenting all business transactions and expenses.
In addition, if an expense applies to personal and business use, you must carefully allocate the percentage for each use. For instance, if you have a home office or use your personalvehicle for business purposes. It is important to document the expenses for tax purposes carefully.
- Don’t Forget to Set Up a Payroll System for Yourself
Even if you are a sole proprietor, you need to determine how you will be paid. For tax purposes, setting up a payroll system can be especially useful for documenting income from business transactions. Some business owners decide to pay themselves as an employee. A tax professional can help determine the best way for you to handle withdrawing funds from the business as income.
If you hire employees, you need a payroll system that determines the payroll schedule, verifies employment status, track payroll, handle payroll taxes, and maintain employment records. A business can get into financial trouble if it does not carefully maintain payroll records.
- Don’t Forget to Determine How You Will Accept Payments
Business transactions for expenses are typically paidwith a credit card or company check. Avoid paying any expenses in cash because those business transactions are difficult to track and document. However, you may want to accept cash payments for your business transactions with customers and clients. You may also want to accept checks, debits, and credit cards as sources of payments. Remember, each type of business transaction must be documented and has pros and cons.
Cash payments are “money in the bank.” However, checks and credit card payments can be declined. In addition, you could incur fees and transaction costs when you accept checks and credit card payments. Unfortunately, few people use cash for business transactions. Therefore, the fees associated with other forms of payment are often simply a cost of business you must absorb.
Contact a Coral Springs and Parkland Business Law Attorney
Putting procedures and policies in place to handle business transactions can be overwhelming for many entrepreneurs, especially if they are first-time business owners.
The South Florida business law firm of Mathew Fornaro, P.A. can help ensure that you have the policies, procedures, and mechanisms in place to protect your business and ensure compliance with all federal and state laws related to business transactions.
Call 954-324-3651 or use the contact form on our website to discuss your questions about business transactions with a Coral Springs and Parkland business law attorney.