Are you prepared to take charge of the new company’s accounting, but unsure where to start? As a new business owner, we understand that you often wear many hats – from accountants to artists. But it’s also important to wear the hat of a diligent bookkeeper. Monitoring your financial transactions is vital to business ownership, whether you’re just starting or have an established company.
This is particularly important for new businesses working on tight budgets, and even if you have significant backing, transparency in spending becomes essential when you have shareholders on board, keen on knowing how their investments are being utilised.
What is business accounting?
Accounting is systematically documenting, evaluating and comprehending your company’s financial information. Entrepreneurs use accounting to monitor financial activities, connect legal obligations, and make stronger business choices.
Choosing a system
Before your launch date, there are a few things to consider when choosing the best accounting system for your distinctive business.
Method of accounting
Which accounting approach is most appropriate for your new business — a cash basis, accrual basis, or a hybrid method? In other words, will you document your income or expenditures when cash is physically exchanged immediately after the transaction despite payment or a combination of both?
Type of software
While your company might start small enough to track its earnings and expenditures through a simple handwritten system, this won’t last long. Outdated paper-and-pencil accounting procedures are fraught with the possibility of costly mistakes, and paper-based systems also risk losing or destroying helpful accounting data.
Do yourself and the company a favour by implementing an electronic accounting system. There are hundreds of start-up accounting software applications, including standalone suites or cloud-based applications, so defining what you require in a software program before getting on the right system is essential.
Determining who is responsible for accounting duties is essential to any organised accounting framework. Some entrepreneurs have the expertise and ability to handle most financial duties, while others want to hire an employee to maintain the paperwork.
Additionally, having an accountant on board can be highly beneficial, particularly during tax season. Even if accounting staff aren’t involved in day-to-day tasks, the small company you run may find itself in a position to make risky financial decisions where expert advice will prove valuable.
Essential start-up accounting tips
- Learn the laws that apply to your company’s type, particularly tax regulations. Not following them correctly can have serious consequences for the start-up.
- Set reminders for tax due date so you have sufficient time to fill in the tax returns.
- Separate your business and personal expenses. Open a company account and business card rather than a personal one.
- Get accounting software that is cloud-based to automate the process.
- Develop and stick to budgets to know precisely where your cash goes.
- Set financial objectives and regularly evaluate whether you’re on an appropriate track towards them.
- Keep and hold on to all of the receipts and invoices. Keeping copies of transactions allows you to balance your books more easily.
- Don’t pay any personal expenses with your company’s checking account. It will be documented in the accounting system as an owner’s withdrawal.
- Develop a separate folder, especially for any legal agreements or accounting records of the start-up (like contracts, receipts, and invoices).
Accounting fundamentals every start-up needs to track
- Revenue (Sales): Keep an account of all sales transactions, such as the date of sale, client information, and the amount invoiced or received. This is useful in monitoring your business’s income.
- Expenses: Record all business expenses, like rent, utilities, office supplies, employee salaries, and advertising expenses.
- Cash Flow: Monitor cash flow to ensure sufficient cash to cover expenses while running the business. Develop cash flow statements to monitor the money coming in and going out.
- Accounts Receivable: Keep records of money owed to the company by customers. This includes unpaid bills and outstanding payments.
- Accounts Payable: Document your outstanding bills and debts to vendors, landlords, and creditors. You keep your relationships strong and make sure you pay them on time.
- Bank Reconciliation: Regularly reconcile your company’s bank accounts to match the documents with the bank’s records. This assists in determining discrepancies and ensures precision.
- Tax Obligations: Determine and set aside money for taxes, such as income tax, payroll tax, and sales taxes (if applicable). Maintain up-to-date with tax filing deadlines.
Starting a company can be stressful, but if you comply with this list, you’ll have your cash flow in order from the beginning. From opening the right type of bank account to deciding how much you’ll offer per product, these responsibilities will all help ensure the company’s success now and as it grows.