When starting a new business, you make many decisions that will affect how your company operates.
How you set up your accounting function is part of this early set of decisions. A streamlined accounting function that works for your business provides a solid foundation for all of your financial decisions. In addition, a good accounting function can help you record and analyze the financial performance of your business in its initial stages.
These first few accounting decisions are not set in stone; your accounting function will undoubtedly evolve as your business grows. However, taking the time to research how you should set up your business allows you to start your business on the right foot.
Typical decisions to make on Day 1
Businesses come in all shapes and sizes. There is no one-size-fits-all approach to an accounting function that fits all companies. It is crucial to keep in mind that your decisions may differ from those of other business owners.
These questions will provide a starting point to help you cover your bases for a streamlined accounting function.
As you think through these questions, you might feel overwhelmed about the decisions you have to make, along with everything else you are doing to run your business. If you’re looking for advice on how to start, a trusted accountant or financial advisor can help you with the process.
What type of records will you keep?
There are mainly two types of accounting systems, cash accounting and accrual accounting.
Many small business owners are partial to cash accounting because it is easy to use and understand. It doesn’t demand as much record-keeping as accrual accounting. The CRA, however, requires accrual accounting for most companies for tax purposes. If you decide on cash accounting for simplicity, you might later discover that you need to implement accrual accounting. Maintaining two sets of books can be costly and creates redundant work in the future.
Researching your new business’s needs and requirements can help you streamline your accounting function from the first day.
How often will you record and reconcile your accounts?
You must decide how often you want to record transactions and reconcile your accounts. Reconciling accounts ensures that your books are in order and you have recorded all transactions. Depending on the size and complexity of your business, you may want to reconcile daily, weekly, or monthly. Picking a starting schedule will help you streamline your accounting function and keep your books up to date.
Who will be responsible for your bookkeeping and accounting?
You’ll also need to decide who will be responsible for entering the data into your accounting system. Your financial records must be accurate, making this an important decision for a new business.
You can DIY your accounting, hire someone in-house, or outsource it to a bookkeeper or accountant. An accountant or bookkeeper can help you set up and take on the day-to-day bookkeeping tasks so you can focus on running your business.
What software or systems will you use?
Setting up and maintaining an accounting system can be time-consuming, but several software programs and online services can help. Many popular accounting software programs offer various features to meet small businesses’ needs. These include:
- Expense tracking tools
- Bookkeeping / Accounting software
- Payroll software
- Spreadsheet Tools
Are there opportunities for efficiencies?
All income and expenses must be tracked, including sales, purchases, invoices, payments, etc. To make your life easier, think about how other parts of your business fit into your accounting system.
Many software can record recurring transactions, such as monthly rent, or generate transactions when invoices are generated or received. Using features relevant to your business can automate manual data entry and save you time and resources in the long run.
What reporting metrics will you use?
Finally, you’ll need to decide how you prefer to track and report your financial data. You will want to consider which financial statements you’ll use (e.g., income statement, balance sheet, cash flow statement) and how often you want them updated.
When you set up your accounting function correctly, you will be able to get crucial financial insights as early as the first few weeks and months of starting a new business.
Tips for making the right accounting decisions from day 1
When starting a new business, the first few days and weeks are crucial for making the right accounting decisions. Without proper planning and execution, you could be setting your business up for failure down the road. Here are some tips for doing the correct bookkeeping and financial management choices in those early stages.
Consider the type of business you have
Depending on the type of business, you may need a more straightforward or complex system. For example, if you’re selling products online, you’ll need to track inventory levels and generate invoices and shipping labels. In contrast, service-based businesses might need the ability to track labour costs using time sheets.
Estimate the size of your business
If you are starting, you may not need all the bells and whistles of a comprehensive system, nor will you need to track all the metrics of a more established business. However, keep in mind that as your business grows, you may need to upgrade to a more robust solution.
Define your budget
Accounting is an essential function, but there are many approaches for small business accounting at different price points. It’s critical to find one that fits within your budget. Don’t be afraid to start with a basic workflow and upgrade later as your needs change. Depending on your business complexity and requirements, you might want to outsource the accounting function or hire a part-time bookkeeper.
Assess your accounting knowledge
If you’re not an accountant or don’t have much bookkeeping experience, you might outsource all your accounting needs or hire full-time support. On the other hand, if you are financially savvy, you might delegate some tasks while maintaining oversight of the function. Only you can make the right decision.
How do I know if I’m doing it right?
Often business owners are unsure if they are taking the proper steps when setting up the accounting function of a business.
Ask your accountant or bookkeeper for guidance if you’re unsure about something. They can help you set up your system, train personnel and ensure that you’re recording transactions correctly at the beginning.
Making the right bookkeeping and financial management choices is crucial for any new business in those early stages. By implementing the right accounting system and getting familiar with bookkeeping, you’ll set your business up for success.
Contact Glenn Graydon Wright LLP in Oakville, Ontario for Experienced Accounting Advice
Whether you are starting a new business or a seasoned owner, talk to a skilled accounting professional to find more ways to streamline your accounting needs. At Glenn Graydon Wright LLP, our financial advisors will provide recommendations on simplifying your accounting function and providing services to support your accounting team. To learn more about how Glenn Graydon Wright LLP can provide you with the best accounting expertise, connect with us online or by telephone at 905-845-6633.