Step 16: Choose Accounting System
The Concept:
The successful entrepreneur has accounting systems that track all money exchanges in place and operating before the business opens. Such systems are used to monitor business finances and measure the success of the business.
What you need to know:
Financial statements tell a great deal about your business and are needed to compile tax information. The statements include:
• Profit and Loss (also called P&L, Income Statement, or Income/Expense Statement). This monitors business income and expenses as well as profits or losses over a set period of time (monthly, quarterly or annually). Make a P&L budget and monitor your actual performance against it monthly.
• Balance Sheet It provides a "snapshot" of your business finances at a set point in time and shows what you have and what you owe. The difference between those is your net worth or equity.
• Cash Flow Statement A cash flow statement is designed to convert the accrual basis of accounting used to prepare the income statement and balance sheet back to a cash basis. This accounting statement tracks all cash into and out of a company. The cash flow statement is like a checkbook for the entire business. It shows the beginning balance; deposits such as loans, sales, or investments; and checks, such as all expenses, loan payments and owner draws.
• Other Managerial Systems Depending on your type of business, you may need to track inventory, labor costs or productivity. Accounting systems are available for all of these.
A qualified accounting professional can help you set up and maintain your accounting systems.
Points to consider:
Choose an accounting system that comfortably fits your needs.
What tasks will your accounting professional perform? (Keep your records? Review or audit your records? Calculate the taxes owed and make payments?)
How many transactions will you process?
Should your systems be manual or automated? (Some systems are simple ledger books that are excellent for small businesses. Automated computer systems offer quicker access to reports and certain managerial accounting functions such as inventory management and labor costs.)
What training is needed to operate the proposed system?
How can you use the system to make your business more successful?
What costs are associated with your proposed accounting system?
Does the proposed financial accounting system compile income statements and balance sheets?
Has a cash flow monitoring system been developed?
Are other needed managerial systems in place? |
