Bookkeeping is an integral part of your small business. If you can’t keep up with your cash flow, you’ll become another statistic about the perils of entrepreneurial startups. Clearly, you need to take control of your finances. Here are three steps for setting up a small business accounting system.
Choose an Accounting Method
The field of accounting involves many structure-based choices that will impact your cash flow and balance sheet. For this reason, the accounting method you pick is critical to your long-term success.
The choices for tracking income and expenses are the accrual method and the cash method. Most businesses use the accrual method since it’s the approved method by the generally accepted accounting principles in the United States. In this method, the business registers the sale in its books the instant the purchase occurs, even if the payment has not yet been made. For example, a furniture delivery company would document income from a sale when its employee makes the delivery. The fact that the buyer might not pay immediately is irrelevant.
The cash method prioritizes payment. When a company receives money for a product, good, or service, it notates the transaction in its books. Similarly, if the company agrees to pay for something at a later date, the expense is not recorded until the payment is made. You want to choose the process that fits your company the best. Private companies are not required to comply with GAAP, but if you plan or hope to take your company public someday, you may want to use GAAP-approved processes from the start.
Choose a Recording Method
Your next bookkeeping decision is how to keep your records. Before the age of computers, the most popular choice was by hand. Businesses would make copies of every exchange with customers and suppliers. Today, most companies use software for their record-keeping. It’s the ideal choice.
The right computer program will provide mistake-free bookkeeping. Plus, it’ll automate some of the accounting processes that would otherwise require additional labor and expense. Whether you’d outsource these processes or perform them internally, you’ll save the overhead by using software.
The most popular bookkeeping programs are Peachtree Accounting and QuickBooks Pro. Several other solutions exist, though. You should read online reviews to choose which one is best for your needs. The most important aspects to consider are whether you want cloud access and portability. Cloud access enables real-time updates from anywhere in the world, a huge asset. Portability means that you can use the programs from smart devices, which is a growing business necessity.
Pick Forms of Payment
How you pay your customers will go a long way toward determining the success of your company. You should prioritize secure payment methods that protect your interests. Some types of online payments, such as PayPal, are susceptible to data breaches. The same is true of cash that you keep in your office.
You’ll want to buy the safest payment method available, which is business checks. These documents are tamper-proof thanks to a protective coating used in their design. Even if a criminal receives one of your checks, he can’t alter the payment fields. Due to the stock used to make the checks, robbers also can’t counterfeit them. When using business checks, you can pay with confidence.
Planning your accounting is a critical part of successfully managing your business. Follow the three tips above to secure the future of your company during those difficult early years.