So, you are a startup ready to boost your business and have completed all the essentials like managing, marketing, business model, legal advisory, and emergency strategies. Great job, then! Oh, wait.
I forgot to mention bookkeeping and accounting. Without these, your partners and investors won’t find your business credible. And even for California startups, several things like tax rates, complaints landscape, and progressive policies depend on them.
Without this step, you will encounter some specific regulatory issues, and you know that we will never leave any of your queries unaddressed. So buckle up because this blog will share bookkeeping and accounting tips so our California startups can quickly manage their finances and regulatory taxes.
What is Bookkeeping & Why is it Beneficial to Have a Bookkeeper?
This may sound absurd, but there are some people out there who are not aware of bookkeeping and small business accounting. So, initially, let’s make it clear that bookkeeping is the process of tracing or recording your business finances. After this simple definition, this process’s credibility and essentiality might have been cleared up for you.
Another thing that needs clarification is the easy bookkeeping system for small businesses. For that, you have two options: bookkeeping apps or hiring a bookkeeper. Let’s compare both so you can decide as early as you should. The apps require manual data entry, and catching up can be difficult, especially with taxes, transactions, and invoice tracking, plus you have to keep revising so things won’t go wrong.
Now, the bookkeeper who will cater for your financial journey, and the best partner for you, is the Books by Jenn that will give you all your bookkeeping solutions.
6 Bookkeeping Tips for California Startups
If you are interested in simplifying your business finances and wish that your business stay away from expensive financial doctors, follow the tips below and get the answers to why do California startups need a bookkeeper
Separate Business and Personal Finances
The way you separate your personal and professional life, remember to do the same for your business finances to avoid accounting mistakes. In California, for your business stability, you need to focus on your legal protection, tax clarity, compliance, financial clarity, and decision-making.
And by overlooking these, there will be missed deductions, penalties, errors, and increased accounting fees. To prevent all these, open a separate business dedicated bank account, use separate business cards, digitise your receipts, and establish clear business expenses. You will get a clear, enhanced, and simplified professional financial picture.
Right & On-Point Accounting Methods & Software
Here comes another tip, which teaches you the core tips about accounting methods. The first method is cash-basis accounting; it is simpler, more transparent, and more flexible, but less accurate.
The second is accrual-basis accounting; it is more precise for long-term planning, scalability, and GAAP compliance, but is more complex and often delays cash flow. Another method is your own digital bookkeeper. It saves your time, reduces errors, provides real-time insights, and streamlines startup processes.
Expense Tracking & Record Keeping
The best thing startups can do to avoid accounting mistakes is to keep track of their expenses. This is important for financial clarity, budget accuracy, fraud prevention, and many other reasons. Keep track of your invoices, whether sent or received, purchase receipts, bank or credit statements, payroll records, legal documents, liability lists, tax forms and returns, etc.
Understanding & Compliance of California Tax Regulations
You are a California startup, so you must consider California’s tax considerations, such as sales tax, payroll tax, franchise tax board, and local business licenses and permits.
California Tax Considerations:
- Sales Tax: If your startup sells tangible goods or certain services, you must register for a California seller’s permit and collect sales tax on taxable sales. Rates vary by location due to local district taxes, so accurate tracking is essential.
- Payroll Taxes: If you have employees, you must withhold state income taxes and pay California Employment Development Department (EDD) taxes, including unemployment insurance (UI), disability insurance (SDI), and employment training tax (ETT).
- Franchise Tax Board (FTB): California imposes an annual franchise tax on corporations and LLCs, regardless of profitability. Most new businesses must pay a minimum franchise tax, typically $800, even if no income is generated.
- Local Business Licenses and Permits: Depending on your city or county, you may be required to obtain specific business licenses or permits, which often come with associated fees and renewal requirements.
Federal Tax Obligations:
- Federal Income Tax: You must file federal income tax returns based on your business structure (sole proprietorship, LLC, corporation, etc.) and report all business income and expenses.
- Self-Employment Tax: For sole proprietors and partners, self-employment tax covers Social Security and Medicare contributions and is calculated on net earnings from self-employment.
- Employer Identification Number (EIN): Most startups need to obtain an EIN from the IRS, which is used for tax filing, opening business bank accounts, and hiring employees.
Also, remember the federal tax obligations, such as the federal income tax, self-employment tax, and EIN. You can make the payments and even seek professional tax advice to avoid penalties or fines.
Monitor the Financial Health & Cash Flow
Financial stability is the key, and startups can attain it with the help of cash flow. It will bring operational stability, growth opportunities, management of unexpected expenses, investor confidence, and debt management. For better financial health, keep the income statements, balance sheets, and cash flow statements. Create a budget that forecasts financial projections and often reviews your financials.
Never Hesitate to Seek Professional Help
According to the accounting industry in the U.S., revenue from accounting services has reached around 145.5 billion U.S. dollars, yet 90% of startups fail in their businesses, and the reason is not seeking professional help.
Seeking professional support brings accuracy and compliance, is time-saving, supports your financial modelling, and provides other expert advice, like tax strategies.
Frequently Asked Questions
1. Do you need a license to be a bookkeeper in California?
No need for any specific license, requirements, or certificates to be a bookkeeper in California.
2. Do California startups need a bookkeeper?
Yes, startups do need a bookkeeper. It will bring financial clarity, tax compliance, cash-flow management, and many other benefits.
3. What is the easiest way to set up a bookkeeping system for a small business?
The easiest way to do bookkeeping involves separate finances, the right accounting methods, leveraging accounting software, tracking digital expenses, and regular reconciliation.
4. What is accounting and bookkeeping in CA?
In California, accounting and bookkeeping are the processes of tracing or recording your business finances.