Start Up Business and Accounting Practices

Startup Business Best Accounting Practices

When developing a startup business it is necessary to decide on the bookkeeping groundwork you will put in place at the very beginning of things.

Which Bookkeeping & Accounting Software Package to Use

In beginning your company you might use a simple spreadsheet to monitor your business expenses and income. At some point, however, you might wish to give consideration to implementing a small-business accounting software package like Sage Peachtree or QuickBooks to keep track of the company’s financial transactions. As a new start-up grows, the paperwork involved in paying expenses and collecting income can prove too tedious without the help of a accurate and reliable financial database. A good small business accounting software will also ease your income tax compliance, inventory recordkeeping, and payroll records.

Certain bookkeeping packages work best for real property/real estate, and there is other software that works great for project accounting. While generic bookkeeping software is ordinarily less expensive, and the industry-specific bookkeeping software is commonly more costly, but specialized accounting software could certainly save you money and time as your business grows.

Which Method of Financial Record Keeping to Choose

As a self employed small business owner, you have a bit of freedom in just how you document your financial comings and goings. As you are no large corporation, it isn’t necessary for you to provide financial statements in accordance to Generally Accepted Accounting Principles (GAAP). For instance, you may prefer recording your income when you deposit a payment into your bank account and report the expenses whenever you write out a check. Accountants refer to this accounting method cash method of accounting. While this method of bookkeeping does not follow GAAP, it is more than adequate for a small start-up.

As your business grows, then, you might elect to adopt a more advanced financial recordkeeping process. Now at this point, you may wish to shift to the accrual method of accounting. Under this method, you record your income when you have an invoice, rather than waiting to get paid for that service. You recognize a business expense when you receive a bill from a supplier, rather than waiting until you pay the supplies. This method of accounting is preferable because it allows you to more closely match the income your business generates to the expenses you incurred to earn it. For example, you may have received an advanced cash payment before you provided services to a customer. You may want to wait and record that amount as revenue during the year you actually provided the services, rather than the year in which you received the cash.

As for taxes, the Internal revenue service is 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. Although, when you sell, produce, purchase product, special rules apply on when you should use the accrual method. If your business handles inventory in any way, you should likely consult our accountants to find out when to use the accrual method and when not to.

Establishing a Budget

You’ll also want to make certain that the accounting software you choose will enable you to make a budget.

Compare your performance

And choose an accounting software that allows you to compare the current year financial statement with those of the previous year. This could help you set goals, discern trends, gain insight.

By way of example, if your revenue increased by 10-percent in 2011 over that from 2010, but, at the same time, your expenses increased by 30-percent, this hints that some inefficiency in your business model. Are you investing in assets with the greatest return on investment? Or, did you forget to provide certain invoices? Opposite of that scenario, 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. Make sure all expenses reported? Were some revenue items duplicated? Or did you absolutely manage to increase your return on investment? It is important to establish the root causes behind these trends in order to paint an accurate picture of your business’s performance and to make crucial financial decisions.

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