Startups And Best Accounting Practices
Figure out the accounting procedures that you will use at the very beginning
. Establish a bookkeeping method that is forward-thinking, so that you're business growth doesn't have to wait while you refigure your bookkeeping methods
Deciding on an Accounting Software Package
When beginning your company you might use a simple spreadsheet to keep pace with your business expenses and income. At some point, however, you may want to give consideration to implementing a small-business accounting software package like QuckBooks or Sage Peachtree to monitor your business'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 reliable and accurate financial database. A good small business accounting software will also help make tax prep easier, keeping payroll, and inventory record keeping.
Anticipate your bookkeeping needs. There are software packages that work great with project accounting, and there is also software that works best for real estate (like fixed income accounting). Specialized bookkeeping software is often times more pricey than the more generalized software packages which are perfect for sales of goods, but if you have an idea of where your business is headed, you could select the appropriate accounting software at the very beginning can save time and money as time goes on.
Choosing a Method of Bookkeeping
Big corporations will have to adhere to GAAP, or the Generally Accepted Accounting Principles. Startups and small businesses, however, are allowed more independence in how they document financial records. If you are a startup owner, you may prefer the cash method of accounting,
As your business grows, then, you might elect to adopt a more advanced financial recordkeeping method. Now, you may wish to shift to the accrual method of accounting. Under this method, you record your income when you have an invoice for services provided, 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 income taxes, the Internal revenue service is very 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 one year to the next. Though, when you produce, purchase, or sell merchandise, special rules apply on when you'll need to utilize the accrual method. If your business handles inventory in any way, you likely should consult our accountants to decide when to use the accrual method and when not to.
Establishing a Budget
You'll also want to make sure that the accounting software you choose allows you to generate a budgeting plan.
Rating Your Performance
And you will want to 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, gain insight, and see trends.
It is crucial to get to the bottom of trends in order to see a spot on picture of your businesss performance and to make intellegent financial decisions. For example, 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. Were some revenue items duplicated? Or, if your revenue increased by 10-percent in 2011 over that from 2010, but, to do so, your expenses increased by 30-percent, this suggests some inefficiency in your business model. Are you investing in assets with the greatest return on investment? Or, did you forget to provide invoices for some services provided during the year?
by: John C. Huddleston
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