Accounting helps you keep track of your business’ expenses and income, as well as forecast how much money you will need in the future.
If you start out in your small business balancing your bank accounts in a checkbook register or on a spreadsheet, that may work for the beginning, but you will want to find some sort of business accounting software to do the job properly.
Using effective accounting software can help you better manage your expenses and income, see who owes you money and see what outstanding accounts payable you have. It can help you determine cash flow, which may help you figure out if you need to apply for a business loan for find investors.
For Public Companies
If your company is public, and you have shareholders in the community, you are required to adhere to certain accounting practices and procedures, according to Sarbanes-Oxley. Your accounts may be subject to inspection is something doesn’t add up, so it’s important to keep accurate records.
For Private Companies
While you may not have rules to adhere to when it comes to accounting for private companies, managing your accounting properly can help you file your taxes correctly each quarter. Having all your information organized by type of expense or income can help you easily match up the expenses on your tax software, or at least make the job easier for your accountant.
Who Holds the Job
Early on, you as the founder of your company probably manage your accounting, and that’s fine. But as your business grows, your accounting needs change, and you get busier. You have a few options when it comes to who gets the job:
- A Chief Financial Officer, especially for a public company
- A full-time accountant you have in-house
- Human resources staff
- External accountant
Who you choose will probably depend on how much work is involved as well as your budget. If you just need your accounts updated every few weeks and invoices sent out, you can probably benefit from the part time services of an outsourced accountant. But if you’re trying to stay on top of FASB rules for a public company, you’ll do better hiring a CFO.
What Accounting Can Tell You
You can learn a lot from your company, just from your accounting software:
- Determine what services or products you should increase or decrease, based on Profit and Loss reports.
- Keep to your budget and predict when you will be able to afford large expenses while monitoring Cash Flow.
- Send invoices and get reminders when they are not paid on time.
- See how successful (or not) your company is by looking at the Balance Sheet.
- Manage employee pay records, as well as pay employment taxes.
- Export data for tax filing.
- See what vendors you owe money to and determine when you have the cash to pay them.
- Show potential investors how viable your business is as an investment.
There are several business accounting software programs on the market, such as Quickbooks and Freshbooks. Many you can use from any computer, as they are web-based, while others must be installed on a computer. Look for software that has the features you need to best manage your accounting. Some may have industry specific features that you will find useful in your area of business.
Make sure your business bank account and your accounting software match in the available balance in your account. Schedule a day (usually the first or end of each month) to send invoices to your clients, and establish a due date for all. Keep track of who doesn’t pay on time, and consider enforcing a late fee penalty.
Determine who needs access to the software. Certainly the person who will be managing the accounts, but you might also select a backup person to be trained in case the first person is sick or quits. And you as the owner should have access as well.