There I was. Sitting across the table from a group of investors in charge of performing due diligence on our company. I had just passed the 4th hour of questioning on everything from sales strategy and pipeline to our team make-up. I was tired, but feeling good.
Then came the final section: financials. To be sure, we thought we were more than prepared. We spent countless hours working on projections and talking through if-then scenarios. But suddenly, I found myself having to talk through a different type of financials conversation.
“You said you raised X in funds so far. Why is Y showing up on your balance sheet?”
“Your stated contract revenue doesn’t precisely match your Sales revenue.”
“Why don’t you have unearned revenue as a category here?”
As I thought through these questions, one answer came to my mind: I should have been more prepared.
Financials is one of those things that is hard to place a priority on day-to-day. However, not staying on top of them can mean a huge blow to your company. Unfortunately, for us bootstrappers, there just isn’t enough money early on to focus on this problem. So what are some ways to sole for it?
Here are some of my suggestions among various categories:
1099s and W2s:
Before February 1 of the new year, you have to provide a W2 to each of your employees, as well as a 1099 to each of your contractors. This allows them to file their own taxes. This is a requirement by the IRS. There are several websites that can automate the entire process for you. Search on Google and select one that works best for you, including the more popular ones like TurboTax.
Regardless of what happens throughout the year (even if you don’t make any money), you want to start your company off on the right foot. That means, you have to file your company’s taxes. Fortunately, you are in luck. Tax preparation is typically a deductible expense, meaning that you could receive the cost of that preparation back. So which tax prep service should you use? I tried using the box ones (TurboTax, TaxSlayer), but unlike for Individuals, the box solutions for corporations were way too complicated.
Important – Keep in mind that tax deadline is not April 15 for Corporations! In 2013, the deadline was March 17.
This is where many people who go on their own get caught off guard. You cannot pay payroll without paying payroll taxes. This bears repeating(but since this is a blog, you can just reread the last sentence). Each time you pay an employee, you will withhold from her paycheck taxes that they must pay, and taxes you must pay on their behalf. Typically these taxes have to be paid at the end of every month — though some can be quarterly or annually. Figuring out how to pay everyone is even more complicated. Keep it simple by reading what we decided to do in Part B of this column (or if you know a better option, feel free to comment!)