How to Set Up an Accounting System For Your New Business
How do you set up a business accounting system for your startup? Let’s discuss what you need to do.
1. Find a Good Business Accounting Advisor
Don’t try to do this yourself. If you do it wrong, your business may never get off the ground.
Find an accountant with expertise in setting up a new business. This is the most important startup investment you will make. It’s no time to pinch pennies.
In addition, find an advisor who has experience setting up companies just like yours. Nobody has expertise in every industry and business type.
When you’ve hired an advisor, discuss your business plan. They can help you know if the plan needs to be adjusted from an accounting perspective. When your advisor understands your plan, s/he can help you accomplish the tasks that follow.
2. Decide How to Structure Your Business
It’s beyond the scope of this article to discuss this in depth. The point here is that choosing a business entity comes before setting up your accounting system. Your business structure influences everything from taxes to bookkeeping practices.
Whether you set up your business as a sole proprietor, partnership, or corporation, make this decision before setting up your accounting.
3. Choose a Bank
Choose your bank wisely. Here are factors to consider:
Decide Which Services You Need
Which services do you need? Consider online bill pay, payroll integration, mobile apps, and bookkeeping software integration.
Pay Attention to Fee Structures
Business banking fees are an evil you can’t avoid. Find out what they charge for the services you will use.
Small vs. Large Bank
There are many reasons to use a small, regional bank. They may have higher interest rates for business loans, but it may be easier to qualify. They usually provide personalized service you can’t get from a large bank.
Develop a relationship with your account manager. A local banker is more likely to be merciful about overdraft fees or late payments.
According to the Institute for Local Self-Reliance (ILSR) small and mid-sized banks control less than one-quarter of all bank assets. Yet they handle more than half of all small business banking. National banks devote only 18% of loan portfolios to small businesses.
When you’ve chosen your financial institution, open your business account.
4. Track Expenses Carefully
Your accounting system can only work for you if you do your part. Vigilant documentation will ensure maximum tax write-offs. And it will protect you in case of an IRS audit.
Separate your business and personal expenses. It’s common for entrepreneurs to mix them. They use their car to meet with clients. They work in a home office and on the road. Their phone and computer do double duty.
Business expenses include:
- Office space lease or purchase
- Vehicle related costs
- Home office expenses
- Consultant fees
- Employee wages and training
- Computers and office equipment
Track every penny, no matter how small. If in doubt, save the receipt. If it’s not obvious, document where, when, and why the expense was incurred.
5. Choose Accounting/Bookkeeping Software
We know. Everyone uses Quickbooks. But don’t choose Quickbooks without exploring your options. Discuss this with your business accounting advisor. If you’ve never used accounting software you won’t know what to look for. The type and size of business influences which features you will need.
An advisor with experience with your type of business is invaluable when making this critical decision.
Answer these questions:
- What are my accounting needs?
- Does the software scale as my business grows?
- Is it designed for my business type?
- How many users does it accommodate?
- What security features does it have?
- How much does it cost?
- What type of customer service is included?
- What computer infrastructure will I need?
- Will a cloud-based system do?
- Do I want payroll included? If not, make sure it integrates with your payroll system (or service).
6. Learn Your System
Even if you plan to outsource bookkeeping and/or accounting, you need to understand the system. If it’s too complicated, you won’t know what’s going on with your money. Your software provider may have training materials. Ask your business accounting advisor for training resources.
Simplify HR management today.
Simplify HR management today.
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