A proper accounting system in place is essential for any business to flourish. Successful entrepreneurs suggest it is best to set up a robust accounting system right at the company’s start, allowing it to mature as business operations grow and thus build a sturdy foundation for the businesses. A proper accounting system promises countless benefits, with updated financials being the most important. It is always convenient for a small business owner to have updated information on its financials. That can only happen if there’s a proper system of recording transactions, monitoring the budget, and promptly managing cash flow and income statements. You can conveniently achieve all of this by setting up appropriate accounting software.
If you are freshly starting with your business and have little to no clue about setting up the accounting system for your business, you have nothing to worry about. Here we have listed a step-by-step guide to implementing a proper accounting system for your small business. It isn’t as complicated as some professionals might make it sound.
- Step 1 – Getting started. Set up your bank account: Before you make any purchases or give up any business services, it is best to open a separate bank account for your business. Individual bank accounts will help track your business finances efficiently. Having a different credit card, creditors’ accounts, and payroll accounts is also essential to accurately manage all business transactions and record taxes.
- Step 2 – Pick an accounting method: The Internal Revenue Service (IRS) has introduced two commonly used business accounting methods. These include the cash method and the accrual method. With the cash method, income is recorded when the cash is received in your bank account and not when registered or invoiced. Similarly, expenses calculate when you pay the vendor. The accrual method, on the other hand, works with invoices and billing dates. For small businesses, the cash method works fine since the transactions are not large, and you only pay taxes for the money that came in or left your account in a fiscal year.
- Step 3 – Hire an accounting professional: With your bank account set and accounting system selected, it is time to hire the services of a professional accountant to deal with the regular bookkeeping and accounting tasks of your business. Even though accounting and bookkeeping differ in functions, the latter being a simple data entry task and the former including detailed financial analysis, for small businesses, a single person can carry both tasks efficiently at the start. Hire someone with a good skill set in managing the accounts of a small business. If you are not too particular about hiring someone, you can even choose to outsource your accounting to specialized companies. Establishing an in-house accounting team for more control over the finances would be best.
- Step 4 – Get a proper accounting Tool: With the help of your accounting professional, select the tool that best suits your business needs. Many accounting tools are available, offering varying functionalities and complex functions. Discuss your financial management requirements with your accounting expert and special software that fulfills all your business requirements. While buying a cloud-based or server-based accounting software that offers cross-integrations is suggested, if your business finances don’t allow you to spend a lot on accounting software, you could get free or basic versions of the software.
- Step 5 – Create a budget: With all your accounting tools in place, create a preliminary budget for your organization. Allocate a pre-set amount for each department or task and further redistribute how you plan to use each department’s funding. Good accounting tools offer practical budgeting tools that allow you to allocate budgets and adequately monitor the progress in real-time. After your budget is calculated, it becomes easy to record transactions and monitor the consumption of the budget at ease.
- Step 6 – Record transactions timely:
- Record all transactions meticulously with your tools ready and budget curated.
- Don’t leave the recording for the end of the month because that can increase the risk of error.
- Keep your books updated daily and reconcile them weekly with your bank accounts to have a clear picture of your finances.