For business start-ups, the most important thing to remember when it comes to accounting is that you need to be able to see at a glance what your cash position is. There are several different ways a small business can go about its accounting tasks, but the common factor in all of them is documenting everything. From keeping receipts to processing the employee payroll, it all has to be written down or entered into a system and kept track of.
Most small businesses use accountants or bookkeepers, but even if they don’t, they still need to keep all their financial records in good order so that not only do they always know how much money they’ve got, but also so tax season doesn’t become a stressful and expensive nightmare.
That means it’s important to develop good habits around your accounting right from the beginning, as it’s critical that you keep track of the money coming in and going out of your business. From writing it down in a receipt book to using tailored accounting software, you need to make a constant effort to be accurate.
Pen, paper and a shoebox
Believe it or not, some small businesses still use this method and if their business is a simple one, it’s just as effective as it was back in the day. Just because a system is old doesn’t mean it won’t work – you know what they say about tried-and-true methods.
If a person has no office, but instead spends their days either at their clients’ homes or in their vehicle, their overheads will be minimal. They may not have the latest payment technology either – they could be invoicing their customers or are being paid on the spot by cash or cheque. If this was the case, they would need to:
- Make sure they kept all their receipts – both for making and receiving payments – in a shoebox or something similar and recorded into a receipt book daily.
- Keep track of all their past, present and future jobs in a receipt book.
- Keep a written record of who their customers are, how often they call, and how much they pay.
An Excel spreadsheet
The good thing about this system is that Excel is part of any basic Microsoft Office package, so a business doesn’t need to pay for separate accounting software if their financial needs are pretty basic. It’s often a good option when you’re just starting out, as it means you can get to grips with your business’s finances on a basic level. If your business becomes more complicated down the track, you can make the move to accounting software.
Using Excel means that you can:
- Set up your own basic accounting system – the application has helpful features that allow for record keeping, tracking, invoicing, calculations and setting up a budget. What you want to do is have a column where you enter cash in each day and another that roughly equates to cash in the bank.
- Easily give records to your accountant – they won’t be using Excel to actually do your accounts, but they’ll have it on their office computers and will easily be able to shift the date into their own systems.
Accounting software
The thing about using spreadsheets is that it’s easy to make a mistake.
With accounting software you’ll reduce the risk of errors. And a good package will do a lot of the thinking for you, as it’ll have features for keeping track of your cash. It’ll also generate professional-looking invoices, keep track of who owes you money, help you enter everything accurately for your accountant at tax season and remind you when things are due.
If you use cloud-based accounting software, you’ll gain increased benefits such as:
- Seeing all your accounts in real-time. The software will link to your bank account, so all you need to do is view your cash position inside the software.
- Increased security – if your computer crashes, your data is backed up elsewhere. If someone steals your laptop, they aren’t stealing all your financial data as well.
- You can view your financial data anytime, anywhere – as long as you have an internet connection and device. You can update your accounting records on your smartphone!
Keeping track of cash trends
Whichever accounting system you decide to go with, it needs to be able to assist you with keeping up with your cash trends. A good system allows you to make better decisions. Money in the bank is a great relief as it gives you time to correct mistakes, explore new opportunities and consolidate your position against competitors.
It’s important to identify trends that can help you make decisions and, down the line, grow your business. You’re looking to:
- Determine where everything comes from – in other words, where is your money coming from and where is it going? Soon you will need to learn about managing your cash flow – this is an important first step.
- Track your customers – who are the most frequent? How much are they spending? Who are habitually late payers?
- Track sales – determine what products or services are selling best, and which are worst. Which are making the best profit margin?
- Track expenses – you need to know what’s costing you the most, so you can figure out what you might not need and free up more cash.
Understanding the cash trends of your business means you’re in a better position to improve your profits and can spot ways your business can grow.
Summary
So, as a start-up, your first task is to evaluate your business needs and figure out which is the best accounting system for you – one that allows you to see your cash position at a glance, and one that will help you keep track of, and spot, cash trends.
Talking to your accountant is an important first step – they’ll have good advice about what system to use, and they’ll want to know it’s one that’s compatible with their own.