Start-ups: Best Accounting Practices
Figure out the bookkeeping procedures that you will put into place at the very start. Have 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 a Software Package
Eventually your business might outgrow Excel Spreadsheets, and you will need to decide which small business accounting software is appropriate for you. You may as well plan for this. That is you may as well plan for success. If you are forward-thinking in your accounting practices, you will not be snared into trying to make a difficult transfer of your books from a disorganized bookkeeping method to a new bookkeeping platform.
Consider your future bookkeeping needs. There are packages that are specialized for project accounting, and there is accounting software that accommodates real estate (like fixed income accounting). Specialized accounting software is generally more expensive than the more generic software packages which are fantastic for sales of goods, but if you have an idea of where your business is headed, choosing the most appropriate accounting software at the very beginning can save time and money down the line.
Choosing your Method of Bookkeeping
As a self employed small business owner, you’ve got some leeway in just how you track your financial deals. As you’re not a enormous corporation, it is not required for you to provide statements in accordance to Generally Accepted Accounting Principles, or GAAP. For instance, you might prefer to record your income at the time you deposit payment for a job into your bank account and record the expenses at the time when you write out a check to cover an expense. This is referred to as cash method of accounting. While this method of bookkeeping doesn’t fall in line with GAAP, it is 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.
As far as taxes are concerned, if you produce, purchase, or sell merchandise, there are rules as to when you must use the accrual method of accounting.
How to Create a Budget that Works for You
You’ll also want to be certain that the bookkeeping software you select will allow you to generate a budget.
Comparing Your Performance
Finally, most small business accounting software packages will allow you to draw comparisons between your business’s current-year financial statements to those of the preceding years. This comparison will permit you to see trends in your business. It also provides insight on how you can add to the success.
It is crucial to get to the bottom of trends so that you can have an accurate picture of your business’s performance and to make wise financial decisions. For example, if your revenue increased by 30-percent for 2011 over that from 2010, but your expenses only increased by 10 percent, this suggests that your business model could be hyper-efficient. Did you truly manage to increase your return on investment? Or, if your revenue increased by 10-percent in 2011 over that from 2010, but, to do so, your expenses increased by 30-percent, this suggests some inefficiency in your business model. Are you investing in assets with the greatest return on investment? Or, did you forget to record invoices for some of the services provided during the year?