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Your small business needs a system for keeping track of all your finances. Not only is it required for reporting purposes, but it also helps you get an overall picture of your company’s performance. A set system helps you get an accurate and consistent look at those details without requiring you and your team to spend all your time manually going over financial records.
But there’s a lot that goes into the creation of such a system. If you’re looking to create an accounting system for small business use, here are some of the most important steps to keep in mind.
Set Up Business Accounts
To effectively keep track of all your finances, you need to have your accounts separated between business and personal use. This means having a separate bank account, credit cards or accounts with creditors, and payroll accounts. This will make sorting through your financial data much simpler.
Choose Your Accounting Method
The IRS allows small businesses to choose between a two main accounting methods. Cash basis accounting is especially popular with small businesses. With this method, you record new income as it’s actually received, not when you invoice for it. And you record expenses when you pay, not when you are billed. With accrual basis accounting, you track income as it’s earned and expenses as they’re incurred.
The accrual system tends to give you a bit of a more accurate picture of how your business is doing each month. But the cash system is often easier for small businesses to manage and can help you identify cash flow issues.
Whichever method you land on, the IRS requires you to stick with it. Or you need to get special permission in order to change. Make this decision right away so you can get your tax, accounting, and bookkeeping programs in sync.
Get Your Bookkeeping Under Control
Bookkeeping and accounting are different. But they do tie together in a lot of ways. Your bookkeeping involves the day-to-day records of your financial transactions. And your accounting is the high level reports and summaries of those transactions.
A proper bookkeeping system can make your accounting process go much more smoothly, whether you hire a professional bookkeeper or create an in-house system. Ideally, you’ll choose a bookkeeping process or software that integrates directly with your accounting program so you don’t need to manually input information.
Find the Right Accounting Software
Managing your small business accounting manually is unnecessarily time consuming, especially when there are so many software programs available to help. There are tons of software and cloud based accounting tools that provide various financial functions, from payroll to tax prep.
Some of them even offer bookkeeping solutions or the ability to connect with another bookkeeping program. So you can easily input data from your daily operations and reconcile your finances. There are even free options for businesses that aren’t able to invest a lot in an accounting system.
From there, you need to continue to update your software program or accounting system, or designate a team member to do so. Integrations with your accounts and your bookkeeping program can also make this easier.
Consult a Professional
The last thing you want is for mistakes to start popping up in your accounting system. But as a small business owner, you probably have tons of other jobs and functions to worry about on a daily basis. And accounting simply might not be your strong suit.
If that’s the case, you might consider outsourcing your accounting process or hiring a part time accountant for your business. It’s important to find the right person who is trustworthy and has the relevant skills and experience to manage your businesses finances. But if you can afford it, this can bring you some peace of mind and give you and your team back some valuable time.
Use the Information
Aside from reporting your earnings and calculating your tax payments, your accounting system isn’t going to do your business any good if you never learn anything from it. It’s important to update your information regularly and go over the information with your accountant or team. Looking at those trends can help you determine what’s working for your business and what isn’t.
For instance, you might notice a significant increase in revenue surrounding a specific marketing campaign. Or you might notice a particular expenditure that simply isn’t worthwhile for your business anymore. With the right system in place, you can make sense of your finances and make the best possible decisions for your company.
This article, “The Secret Behind Setting Up Your Business Accounting System” was first published on Small Business Trends