In this article, the fifth in our “Starting a Business” series, we focus on how to set up a proper accounting system that will grow with you and serve both your immediate and long-term future needs. You’ll need to follow these steps and get at least a basic system in place before you can rent space, purchase needed supplies, invoice customers, and accept payments.
First, you’ll need to establish separate checking and savings accounts for your new business. This will allow you to establish a financial footprint and begin processing the payments that you will use to build your company. When you set up your accounts, you’ll also be ordering checks and deposit slips with corporate logo and information, and setting up your online login.
Second, you’ll need to select a software package for recording transactions. Accounting software helps to streamline the accounting process by automating many routine tasks. The most popular package on the market is undoubtedly QuickBooks, but other software such as Intacct, Sage, Freshbooks, and Zoho are viable alternatives. Ultimately, your selection will be a balanced combination of pricing vs. needed features.
Third, you’ll need to select an accounting method. There are 2 to choose from: Cash or Accrual. The Cash Method dictates that you track income when you actually receive it (whether cash, check or credit card), and expenses when you actually pay them. This is probably the most common method used by small business. The Accrual Method dictates that you track income when a sale is made (regardless of whether payment is made at that time) and expenses when you actually receive goods and/or services. This is more common for larger businesses. You’ll want to consult your tax professional before deciding on which accounting method will best serve your current and future needs.
Fourth, you’ll need to set up an initial Chart of Accounts. These accounts generally include accounts such as Cash, Accounts Payable/Accounts Receivable, Equipment, Inventory, Income, Rent, Insurance, Supplies, etc (as a result of this process, you’ll also establish journals, such as the cash disbursements journal and the cash receipts journal). You’ll also want to set up customers and vendors (entering name, address, and terms for each).
Finally, you’ll need to set up your payroll files. This involves creating a file for each employee (including yourself) and vendors/contractors (specifically relating to 1099s) containing name, address, tax information, etc. This is an essential step regardless of who will ultimately be processing your payroll.
For more information on any of these individual steps or help establishing a complete accounting system for your organization, contact Lescault and Walderman at 86-496-2042.