Starting a New Business? How to Set Up a Solid Accounting System

Can you feel the excitement in the air? Starting a new business is an adventure and a risk wrapped into one experience. The possibilities are limitless, but you need to be willing to step out of your comfort zone to create opportunities for the future.

As an entrepreneur, how are you creating the right systems to support ongoing business activities? It is common for people to be too focused on the implementation and growth of a new business that they overlook some of the foundational details that will influence the future of the company.

Getting the business off the ground is just the first step. When you are starting a new business, you need to be sure that you are prepared with the right systems that will minimize problems in the future. Financial systems are critical to tracking profitability, managing expenses, and staying ahead of the other accounting responsibilities that need to be managed over time.

Why Your Accounting System Matters

We understand how easy it is to push bookkeeping and accounting aside. When you are excited about new product development, marketing campaigns, and other details that affect your business growth, then it seems boring to crunch the numbers and run Profit and Loss reports.

But, neglecting your accounting system is a surefire way to set your business up for failure in the future. You need to know where the money is coming from, how much is coming in, and all of the expenses that are required to keep your company in business. The right accounting system provides the structure and framework so you can keep up with these details without putting in a lot of time for data entry and number crunching.

Starting a New Business: Accounting Tips

Most business owners don’t have formal accounting training. If you don’t know where to start, then you should consider the investment of hiring an experienced accounting team for assistance. DIY might seem like an effective option for reducing expenses. But it is likely that you will be losing money if there are errors or problems in your accounting system.

Here are a few things that should be a priority when you are starting a new business and creating a functional bookkeeping and accounting system:

  1. Register Your Business: It’s important that you can legally run a business from your location, which means that the first step is to obtain a business license. Once this paperwork is in place, then you can move forward with the other steps needed for your financial system.
  2. Open a Bank Account: New businesses often start in the basement or garage of your family home. These startups don’t need to be glamorous or elaborate to have the potential for future growth. But the problem is that business expenses are often mixed in with personal spending, making it hard to track expenses and profits. When you are starting a new business, it is critical that you open a new bank account so all of the finances can be separated from your personal spending.
  3. Hire an Accountant: Even though it might feel premature to bring on an accountant, it is critical that you consider this professional advice for your company. Don’t hire a full-time accountant, because it isn’t common to need 40 hours a week of accounting services. Instead, it is smart to hire an outsourced accountant who can walk you through the process of starting a new business. Make sure that your accountant of choice has experience working with small businesses and entrepreneurs.
  4. Choose an Accounting Software: There is no reason why you should be doing accounting and bookkeeping by hand. Technology enables business owners to avoid busywork by using accounting software that automates these processes. If you aren’t sure what software to use, then talk to your accountant to learn about recommendations based on your unique business needs.
  5. Track Expenses and Profits: Now that your accounting software is in place, you need to be sure that you are prepared with ongoing maintenance of the transactions that are moving through your account. If your bookkeeping and accounting reports are going to be accurate, then it is essential that you build a solid foundation of accurate transaction tracking. Not only do you need to pay attention to the money that is coming in, but you also need to be detail-oriented with the expenses that are required to keep your company running. Tracking these expenses helps you build financial statements, itemize expenses that can be deducted on your annual taxes, and ensure that you are ready when tax season rolls around.
  6. Organize Paperwork: You will have invoices and receipts coming across your desk, which is why you need a good system for organization. A filing system will enable you to pull up receipts when they are needed in the future. It might be as simple as designating a file-folder system in a cabinet next to your desk. Or, you can consider a digital filing system if you don’t want to juggle stacks of paperwork. These receipts and invoices are necessary in case the IRS decides to complete an audit of your business in the future. At that point, you will need to provide documentation that backs up any deductions claimed on your taxes.
  7. Handling Payroll: Depending on how your business is structured, you will need to evaluate how payroll will be managed. This task is another area where your accountant can assist to ensure that the money is managed efficiently. When starting a new business, you might be the only employee. Eventually, your company will grow and it will be time to hire outside help. You have the option to bring on an employee or pay the person as an independent contractor. The worker classification will influence how the person is paid. Not only do you need to ensure that timely payments are provided to your workers, but you need to be prepared for other payroll-related paperwork in the future (such as 1099 forms or W2s).
  8. Tax Systems and Procedures: The specific taxes that need to be paid vary depending on the type of company that you are running. For example, if you are selling physical products, then it is likely that sales taxes need to be collected and paid. A variety of factors influence how sales tax is managed, such as where your business is located, where the goods are shipped, and any tax exemptions that might apply. Your accountant can provide guidance to ensure that you have the right system in place for the collection and payment of sales tax. Other taxes that need to be considered include quarterly taxes, self-employment tax, income tax, employment taxes, excise taxes, and more.
  9. Assess Profitability: The goal of running a business is to bring in a profit for yourself and any investors participating. When you are starting a new business, you can see the possibility of making money. But you need to be sure that your sales are matching up. Are you earning more than you are spending? It is common for new businesses to be “in the red” for the first few years. Even if you aren’t making any money yet, you need to show that your company is moving in the right direction. Your accounting reports are key to evaluating profitability and calculating margins that are available. These numbers provide a clear picture of your current financial standing. Then, gross margins can be improved by cutting costs and optimizing sales.
  10. Funding for Growth: When you are starting a new business, you probably aren’t ready to bring on investors at this point. As your company grows, you will eventually need more capital to boost your business to higher levels of success. Even though you aren’t ready to connect with investors right now, you need to consider how you will access funding in the future. The steps that you take in the earliest stages of business growth will contribute to the possibilities that can be achieved in years to come. If you want to be able to secure funding, then you need to be sure that you are tracking financial details. If money is needed right now, then you might be able to obtain the funding through a small business loan based on your personal credit history.

Professional Accounting Services for Your New Business

The best investment that you can make is hiring an outsourced accounting team to support the growth of your new business. Don’t let yourself be distracted with the reporting and bookkeeping that needs to happen each week. Instead, you can free up your time by letting the pros handle these details.

Our staff at Easier Accounting is just a phone call away. We invite you to contact us in the earliest stages of starting a new business. We’ll help with the implementation of accounting and bookkeeping systems that will set you up for growth and success in the future. Call us at (888) 620-0770 to learn about available services.

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