Having a set of books can help you for a range of purposes. These include evaluating business activities, attracting investors, inquiring funds, filing and paying taxes, and working through your financial requirements. However, setting up a strong bookkeeping system can prove a challenge if you don’t have the necessary background and experience. As an initial step, especially if you are not financially-inclined, contact your accountant, bookkeeper or financial consultant. Doing so enables you to set up your accounting system correctly, avoiding costly mistakes later in the year when filing taxes or other government documents.
Whether you’re starting a business from scratch or you’ve already got your startup going, you can always get a system that will work better for you. So, let’s get the ball rolling.
What do you need to set up your startup’s bookkeeping system?
First Step: Pick an accounting method
When looking for a system ideal for your business, examine all the possible options. Some businesses use cash-based accounting and others use accrual systems. There are also other businesses that have gone for a combination of both systems.
It is an accounting method wherein an income is recorded when it is received (either by cash, credit card, charges or check), and expenses are counted when they are paid out. Such type of system is usually followed by individuals and small businesses, particularly by those who take immediate payment for a product or service.
It is an accounting method wherein income is recorded when a sale is made (rather than when the cash is received), and expenses are counted when they incur (instead of paying for the goods or services immediately). While this process is more complex, it is less prone to errors and is suitable to all types of businesses.
Second Step: Choose the most suitable method
You can choose whichever method you want. Depending on the size of your business, you may want to begin with a cash-based method. A lot of small businesses that are managed by a sole proprietor or a small group of partners pick this system because it is easier and simpler.
However, if you have an annual sale of less than $5 million or you maintain an inventory, it is best to go for the accrual basis accounting. This system is generally considered to provide you with a more detailed picture of your company’s financial position. On the other hand, you need to follow extra steps such as maintaining accounts receivable and accounts payable records.
Third Step: Select a method for recording transactions
Assuming you have already decided on an accounting system, the next step is to select a method for recording transactions. Here are the choices:
Manual Bookkeeping System
This means keeping your financial records by hand. You or your acting bookkeeper may post business transactions and complete them by either hand-writing them into an actual paper ledger, journal or worksheets. While manual systems mean more time spent on paperwork, they can be the best solution for business owners who are electronically-challenged and have simple affairs.
Electronic Bookkeeping System
If you are confident using a computer, this system may work for you. With a computerised accounting system, entering, compiling and retrieving information is quicker and easier.
There’s a myriad of accounting software packages and most of them can manage your books efficiently, including recording your transactions, calculating GST, automating payrolls, preparing financial statements, and so on.
With nearly all functions similar to an accounting software package, web-based or “cloud system” allows you to do the recordkeeping from any location. This also gives other users access to your data, regardless of where they are and when they want it.
If you are on a budget and knows how to use a computer, you may consider running a series of spreadsheets to use for your accounts.
As with all types of bookkeeping system, choose the one you are most comfortable with. Find what works for you and stick with it. When your business flourishes, as it surely will, outsource your bookkeeping tasks and spend your time on what you do best. We at My Virtual Workforce would love to help you. Contact us today.
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