Accounting How-To for Startups
Posted On April 30, 2012
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Establish the bookkeeping procedures and practices that you will use at the very start. Establish an accounting plan that is forward thinking, so that you’re business growth does not have to wait while you refigure your accounting methods
How to Select the Right Software Package
In beginning your company you may use a simple spreadsheet to keep pace with your business income and expenses. At some point, though, you may want to give consideration to adopting a small-business accounting software package such as QuickBooks to manage your business’s financial transactions. As a new start-up grows, the paperwork involved in paying expenses and collecting income can prove too overwhelming without the help of a reliable and accurate financial database. A good small business accounting software will also streamline tax prep, keeping payroll, and inventory record keeping.
Certain bookkeeping packages work great for real property/real estate, and there is other bookkeeping software that works well for project accounting. While generic accounting software is generally less costly, and the niche-specific bookkeeping software is frequently more expensive, but keep in mind that industry-focused accounting software may well end up saving you money and time in time.
Financial Bookkeeping Methods: Which Model to Choose
As a self employed small business owner, you’ve some leeway in just how you keep your financial comings and goings. As you’re not a giant corporation, it is not necessary for you to provide financial books in accordance to GAAP, or Generally Accepted Accounting Principles. For example, you might prefer recording your income at the time you deposit a payment into your banking account and report an expense whenever you write out a check to cover an expense. This is called cash method of accounting. While this method of tracking finances does not follow GAAP, it is more than adequate for a smaller start-up.
Some more advanced methods of accounting, such as the accrual method of accounting, may better serve you as your business grows. The accrual method of accounting records expenses and income upon invoice, rather than waiting for cash to change hands. This bookkeeping method provides you a more expansive insight into you finances.
From an income tax perspective, the IRS is very flexible in allowing you to choose an accounting method. According to its rules, you may use any method as long as it clearly reflects income and expenses and you treat all items of income and expenses in the same manner from year to year. Yet, if you purchase, produce, sell product, special rules apply on when you’ll have to use the accrual method. If you handle inventory in any way, you should likely consult your accountants to figure out when to use the accrual method and when not to.
How to Create a Budget that Works for You
You’ll also want to make sure that the accounting software package you select allows you to generate a budgeting plan.
Judging Your Performance
Most small business accounting software packages will enable you to draw comparisons between your business’s current-year financial statements to those of the earlier years. This anaylsis will permit you to see trends in your business. It also provides insight on how you can add to the success.
For instance, if your small business’ revenue increased by 30-percent for 2011 over that from 2010, but your expenses only increased by 10 percent, this indicates that your business model might be hyper-efficient. So it’s wise to ask yourself, were all expenses recorded? Perhaps, some revenue items were duplicated? Or did you really manage to increase your return on investment? It is imperative to establish the truth of these trends so as to form a precise picture of your small business’ performance and to make essential regarding the finances of your small business. However, if your revenue increased by 10-percent in 2011 over that from 2010, but, to do so, your expenses increased by 30-percent, this indicates a lack of efficiency in your business design. Are you investing in assets with the greatest return on investment? Or, did you forget to supply invoices during the year?