3 Tips For Implementing Accounting At A New Business
When you start a business, it's easy to focus on a wide range of things besides the account. After all, it may feel like as long as you keep good records, you can pull the business accounting together at a later time. However, how you handle accounting from the start will affect your company's odds of success. You should follow these three tips to ensure that your accounting system will provide a solid base for everything else.
Chart of Accounts
This is a simple chart that outlines what the company's accounts are. A company will typically segregate some of its funds to prevent crossing inflows and outflows of cash. You might need one account to finance equipment acquisitions and another to handle customer transactions. By segregating the two, you ensure that no one will accidentally pull too much money for equipment and not leave enough for refunds. If you need to move money between the accounts, you'll have to make a conscious effort so you'll be aware of how the numbers will change.
A business also may use some account types to collect interest. If you have accounts that have to be fully funded, this is a good way to realize some return from cash that would otherwise be idle. For example, you might place the company's payroll in the highest-yielding interest-bearing account you can find.
Cash and accrual are the two methods of accounting. In cash-basis accounting, all money goes on the books only when it's officially transacted. Suppose a customer places an order. In the cash system, the order only goes on the books once the customer pays. Using an accrual system, the business books the sale once it starts processing the order.
Accountants will nearly always recommend that businesses use accrual. The argument for accrual is that it pairs inputs and outputs in the same tax year. Picture what would happen in a cash system if the customer placed the order on December 1 but didn't pay until January 1. The input costs for making or buying the product would go in the first year, but the profit would go in the second year. Especially if your company has a highly seasonal business, this can unbalance profits and losses between years.
Finally, you'll want to adopt a software system for your bookkeeping. Unless you need integration with a different software package for something like inventory, the best move is to adopt your accountant's preferred software. This will promote consistency between your company and their accounting practice.
To learn more, contact a business accounting service in your area.