Apart from the people, a business’ systems act as a backbone. Give it the right ones at the right time and you’ll have a commercial entity that will thrive and withstand most of the storms that come its way.
Most entrepreneurs look forward to setting up management control systems. This includes having certain monitoring tools and financial planning modules in place to be more aware of what’s going in the business.
Because having accurate company information handy (in an organized manner) is crucial to correct decision-making, it makes sense to set them up as soon as possible. This especially holds true of accounting systems because it is important to be in the know of the financial health of your company.
In this post, we look at how to build an accounting system in a startup firm.
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1. Use What You Know
It makes sense to keep all business related documents such as bank statements, invoices, bills, receipts, tax papers, as well as legal and governmental documents concerning your company safely. Engage in the services of a tax advisor for this matter as he/she can advise you about the documents which need to be kept permanently, and the ones which can be disposed of after a certain timeframe.
2. File Your Documents
It is important to have a filing system in place, with a separate file for each kind of financial document. These files can be stored either physically and/or virtually. Have a file for all documents that require action, and once finished, shift them to their individual files.
3. Decide Your Accounting Needs
Depending on the intricacies of your business’s financials and your own comfort level, decide who will handle your accounting needs. You could do so yourself, hire help, or outsource the entire gamut of accounting activities to a third party (i.e. a company or individuals who specialize in small business accounting).
4. Hire a Professional
If you’re thinking about hiring professional help, you could appoint either a part-time or a full-time bookkeeper. A bookkeeper’s services are best suited for startups, which do not plan to expand rapidly. He can help you with setting up strong record-keeping systems, handling financial transactions and producing financial statements.
If you’re running a growing entity with a complex business structure, it makes better sense to hire an accountant. Being able to afford an accountant may be difficult for a small/one-person business. In such cases, you could either prepare the books yourself or engage a bookkeeper and use the accountant’s services for year-end tax planning.
Make sure you hire your accountant or bookkeeper carefully. He needs to be skilled and trustworthy because he will help drive your business’s financial growth.
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5. Pick Your Accounting Method
A majority of startups use the cash method for accounting. It involves recording the income when it is received (either as cash, credit card charges or check), and the expense when they are actually paid.
The accrual method of accounting is perfect for larger companies and involves counting income when a sale is made (regardless of whether you’ve actually receive the money for it) and expenses are counted when you actually receive the good or service (instead of paying for it immediately).
Ask your tax advisor to help you decide which one suits your business the best.
6. Open a Business Bank Account
Open a business account with online capabilities to spare yourself the unnecessary manual procedures and track your cash flow. Further, your bank account should seamlessly sync with your accounting software.
7. Record the Transactions
You know you have a reliable accounting system in place when you’re able to provide your customers with receipts for each transaction. Your system should help you reconcile your accounts using your monthly bank and credit card statements.
Having a robust accounting system in place right from the early stages of the business will help you build a strong foundation for your venture whether you’ve just started out, or are looking to expand.