11 November 2009
ACCOUNTING FOR BUSINESS START UPS
“Starting a new business is a daunting experience for anyone, as
they tackle new areas of the corporate arena for the first time,” says
Chris Ball, Corporate Finance Director with Russell Brennan Keane.
For many, one such area is maintaining accounts, which even the
thought of is enough to bring them out in a cold sweat. However by
preparing some basic systems and files, the process of maintaining
accurate books and records for a new business can be done
regularly and simply. It is important to note that a director is obliged by law to
maintain accurate books and records for their company.
There are some fundamentals matters that need to be put in place at the very start of
commencing your new business:
Depending on the nature and volume of transactions you envisage for your business
the accounting system you select can range from a number of simple excel
spreadsheets to an off the shelf software package, which are often cheap and easy
The core records that need to be maintained are:
• sales ledger recording all sales invoices,
• receipts book for cash received,
• purchase ledger for maintaining purchases invoices
• payments book for EFT, cheque and cash payment
• cash / bank control account.
These five core data sheets will enable you to prepare the basic statements of your
business performance - a profit and loss account and a balance sheet.
More detailed statements of particular areas of the business that need to be prepared
regularly from the information above are the debtors ledger, detailing what money is
outstanding from creditors; the creditors ledger including the amounts owed to
suppliers and finally a bank reconciliation that adjusts the bank balance for uncleared
lodgements and cheques at a period end.
There is an obligation to maintain the source data of the business accounts for a six
year period. You should develop a filing system suitable for your business to store
original sales and purchases invoices and statements, bank statements, cheque
stubs and correspondence, for example in chronological or alphabetical order. This
will assist in any disputes with suppliers or customers and also in the preparation of
year end accounts so your accountant can verify the information recorded on your
core records above easily and quickly – an essential to keep the accounting fee low!
While there is only an obligation to prepare accounts annually, either to calculate
your taxable income as a sole trader or to comply with taxation and Company
Registration Office filing requirements as a company, annual accounts are not much
help in running and managing a business because:
• They are too infrequent. A year is a long time not to know what is happening
to the finances of your business
• They are prepared to a different format that often is not helpful for decision-
It is advisable to routinely prepare and analyse management accounts for the
business. Ideally this should be done on a monthly basis so you have a clear idea of
the turnover being generated, the cumulative costs, outstanding debtors and
creditors and the ultimate profitability of the business – fundamental in the early
stages when cash is tight and the business is becoming established. These accounts
should be benchmarked against the budget included in the business plan.
Tax registration and returns
Every business will have a requirement to register for tax, quite probably under a
number of different tax heads. The Irish tax system works on the self assessment
basis so it is the business owners responsibility to maintain accurate records and
submit this to Revenue in accordance with the prescribed filing deadlines.
Income tax / corporation tax
Depending on whether your business is a sole trade, partnership or limited liability
company, it will need to be registered with Revenue for either income tax or
corporation tax. The profits generated by the business will be taxable at income tax
rates (20% up to 41% plus income levies etc) in a sole trade or partnership while
company profits are chargeable to corporation tax at 12.5%. An annual return is
made for both of these taxes.
Value Added Tax
In most businesses registration for VAT will be required. With certain exceptions,
VAT paid on purchases is recoverable, while you must account to the Revenue
Commissioners for VAT you charge on sales.
This means that, if the amount you pay for purchases includes VAT, you can reduce
the cost to your business by the VAT amount. Similarly, you must deduct VAT from
your sales before accounting for them in your business. A bimonthly VAT return and
payment needs to be completed and submitted to Revenue.
PAYE / PRSI
If your business is employing staff it will need to be registered for PAYE / PRSI. As
an employer it is your obligation to calculate and deduct the appropriate amount of
income tax, levies and employees’ PRSI from your staff’s wages and forward this to
Revenue on a monthly P30 return. There are specific payroll software packages
available to assist with this process which is recommended for a business with
Essentially, establishing and maintaining your accounting system comes down to
understanding what you need to record, developing a system that works for your
business and ensuring you dedicate the time necessary to keep it up to date.
Ultimately it is an exercise that you will get more out of than you put into it as, if your
information is current and correct, you will be well informed on your business
performance and will be in a position to make financial decisions based on accurate
If you have any queries or would like to discuss your business in confidence, please
contact Chris by email at email@example.com or Tel 01 6440100 /090 6480600
Russell Brennan Keane is one of Irelands leading business advisory and
accountancy firms. With 50 years experience providing professional advisory
services to a range of clients in the mid to large corporate market in Ireland, from
offices in Dublin, Athlone and Roscommon.
Tel: + 353 (0)90 6480600 or 086 8227228