Every business must maintain good accounting — if but only to make their lives easier. A lot of new business owners see accounting as a black magic that they don’t really have to deal with. However, even if you’re going to allow someone else to do your books, you still need to know what type of accounting methods to use and which ones to avoid.
First and foremost, you are going to need to sit down and pick a select system to use. This might be the cash accounting method, or the accrual method. The cash method is the more popular one and is adopted by small business owners the most. It’s easier — all it really requires is that you have to account for your income the minute it’s made rather than when you actually get around to getting use of the money. Most business owners will immediately get their money, so the cash method does make sense. However, as you grow you will probably need to switch to the accrual method. This is where you have to account for the sale when it’s consummated, not necessarily when the money comes in for it. Expenses are the same way.
Recordkeeping is going to be important no matter which accounting system that you actually choose. You might think that you’re doing yourself a favor by setting up accounting, but you have to properly maintain your accounting work. You cannot just set it up once and forget about it. You have to enter in all of the transactions of the business. Sure, in the beginning that might not be much but what if your business takes off? You could then face thousands of transactions in a year — and that’s extra work for your accountant if they have to take care of it for you. You want to always focus on the bigger picture, and you definitely want to look at the road ahead. The more that you can focus on things, the easier time that you will have, all things considered.
Again, these are things that a bookkeeper will take care of for you. However, you definitely want to make sure that you are paying someone for their time. They have a lot of work to handle every week with your books, and it’s important to get it right.
It’s not just the tax man that you have to worry about. Failure to get your books straight can affect your ability to get a loan. Banks will want your profit and loss statement. This can only be generated after you have a proper accounting system in place for your business. So the bottom line is that you can actually lose a lot of important contracts waiting till the last minute to set up your books properly.
Think on it as you build your business, and there’s no limit to where you can go!