How to Build an Accounting System for Startups: 9 Tips For Success
How to Build an Accounting System for Startups? Startups can be expensive, especially in the beginning when you’re just throwing money at random things in the hopes that one of them will stick.
In order to make your startup successful, you’ll need to figure out what actually works and what doesn’t, which means tracking each cent that goes into your business so you know how it contributed to your success or failure.
Your accounting system will be the backbone of your company, so choosing the right one is important and beneficial to your business in more ways than you may realize.
How to Build an Accounting System for Startups: 9 Tips For Success
1) Take It Slow
First, start with the basics and make sure you have the proper documentation in place. The IRS will audit your business, so be sure that your accounting system is compliant. Once you have your foundation established, then you can move on to implementing other features like invoicing and payroll.
Make a list of all of the features that are most important to you and your team and prioritize accordingly. Implement these features first, then add more as needed. One way to make this process easier is by using a software package like QuickBooks.
There are several great online resources available with step-by-step instructions on how to set up QuickBooks Online or even how to download it onto your laptop or desktop computer if you want more control over what happens behind the scenes.
2) Invest in A Great Software
Purchase good accounting software that will help you keep your records organized. There are a lot of accounting software out there and it can be difficult to decide which one is best for you.
The best thing you can do is try them out and see which one works best for your needs. When looking at different packages, keep these questions in mind:
- Is the software easy to use?
- Does the package offer all the features you need?
- Is the cost affordable?
- Will I be able to grow with this package as my business does? – What kind of customer service is offered?
- Are there any additional fees for updates or upgrades to the software?
Once you have found a package that suits your needs, make sure you give yourself enough time to learn how to use it properly. After installation and configuration, take time on both short-term projects (setting up accounts) and long-term projects (creating financial statements).
Be sure to save any important files every day. Doing so not only helps protect against hardware failure but also gives you another copy should anything happen during file transfers or other office disruptions.
3) Develop An Organized Chart Of Accounts
In order to properly manage your accounting system, you will need a chart of accounts. The following chart should be your starting point and then customized according to the unique needs of your business:
Type of Account Type Description
- Asset– (Assets) Balance sheet account reflecting items that are owned by the company.
- Liability– (Liabilities) Balance sheet account reflecting what the company owes to others.
- Equity– (Equity) Balance sheet account reflecting ownership interest in the company.
- Income– (Income) Income statement account representing income before taxes and other expenses are subtracted from gross revenue in order to provide net income or profit for a given period.
- Expenses– (Expenses) Income statement account representing money spent during a given period.
- Depreciation– (Depreciation) Expense incurred to allocate part of the cost of a tangible asset over its useful life.
- Accounts Payable– (Accounts Payable) Balance sheet account showing all amounts owed to suppliers, creditors, employees, etc., including those on open credit purchases and inventory purchases not yet paid for.
- Accounts Receivable– (Accounts Receivable) Balance sheet account showing funds due from customers at some future date but not yet received as cash or reduced as an allowance against debtors’ balances on open credit purchases and sales not yet collected on goods shipped .
- Interest– (Interest) Income statement account representing return on invested capital which is usually expressed as an annual percentage rate.
- Taxes Payable– (Taxes Payable) Current liability resulting from a balance sheet account such as Taxes Accrued, Taxes Reserved or Taxes Due On Balance Sheet Items to record estimated tax payments made on a periodic basis rather than withholding tax deposits when the payment is actually made.
- Prepaid Expenses– (Prepaid Expenses) Prepaid expense where payments are made in advance for items or services that will be used within one year.
- Accumulated Depreciation– Accumulated depreciation refers to the total depreciation expense recorded since acquiring the property/asset up until the current time.
4) Decide On Pricing
Decide On Pricing Pricing should be thought of in two ways. Firstly, you need to know how much time your system will save you in the long run. Secondly, you need to think about the value that your product provides your customers.
Both of these aspects will inform what price you should charge. It’s important not to undercut yourself or do too much work for free, but at the same time make sure that customers are getting a good deal and are happy with their purchase.
Keep in mind that different packages will be attractive to different people – some might want a basic package whereas others might want more features and flexibility. Make sure that you have a payment plan that suits everyone!
5) Get Familiar With The Basics
Start by determining what kind of system you need. In the accounting world, there are three types of systems – cash basis, accrual basis, and hybrid.
A cash basis system only records transactions when money actually changes hands. In this type of system, revenue is recorded when it is received and expenses are recorded when they are paid. A good example of a cash basis company is a lawn care service that charges customers on the day the work is done or pays its employees weekly.
An accrual system records transactions as soon as they happen regardless of whether any money has changed hands yet. In this type of system, revenue is recorded when earned and expenses are recorded at the time they are incurred even if payment hasn’t been made yet.
6) Set Up Automated Reporting and Alerts
In order to keep up with your company’s evolving needs, you will need a system that can adapt. Be sure that your accounting software is customizable so that you can set up automated reporting and alerts.
These will ensure that your business is always on top of its finances. Not only will this save time in the long run, but it also allows you to be proactive rather than reactive.
It’s important not to wait until the problem becomes too big before acting. That’s why having good financial systems in place is essential!
7) Review Your Data Regularly
Review Your Data Regularly You need to review your data regularly. You can do this monthly, quarterly, or annually. How often you should review your data will depend on the size of your company and the type of business that you have.
Here are some examples of how often you should review your data depending on the size of your company and what type of business you have:
- Weekly- Self employed people who run their own businesses.
- 3 Months- Small companies with 5 employees or less and no more than $1 million in revenue.
- 6 Months- Medium sized companies with 6 to 50 employees and more than $1 million in revenue.
- 9 Months- Large sized companies with 51+ employees and over $10 million in revenue 12 Months- All businesses regardless of size.
You want to set a time frame and stick to it so that your data is reviewed consistently. If you don’t set a time frame, then it is possible that your records won’t be reviewed at all! The reviews can be done by anyone in the company; however, the person reviewing should know what they’re looking for before they start.
8) Ensure That You Are Good At What You Do!
It’s important that you can show expertise in accounting and business because this is a position where you will be managing money. If you’re not great at these things, it might be best to hire someone who is or find another job.
Find the Appropriate Team Members!: When you have the right team members, your success rate skyrockets. The first few steps in developing an accounting system for startups are also fairly simple.
You need to do some research on what type of account structure you want and then get access to all of the necessary accounts so that you can start tracking transactions into them.
Your first step should be organizing all of your paperwork into a folder with appropriate tabs for each category (e.g., investments, debtors, creditors).
That way, when you come across something new (such as bank statements), it won’t get lost among other documents. The last step would be to put together a filing system so that everything has its own place.
9) Define Your Long-Term Goals
In the early stages of business, startups need to be extremely focused on growth. An accounting system should not be a priority. However, as the company matures and looks at a long-term strategy, it becomes necessary to start thinking about a system that can support future needs.
Consider these tips when developing your accounting system for startups:
- Find the right balance between customization and integration. The perfect solution is a customized package with integrations to third party software (such as QuickBooks). A customized solution gives you the flexibility to make changes in response to changing business conditions without having any limitations imposed by an off-the-shelf product. Integration with third party software saves time by allowing transactions from one program to populate fields in another program.
- Choose a cloud based solution for scalability and mobility reasons. Cloud based systems are flexible enough so they grow with your needs, but you are still able to access them from anywhere there is internet access or Wi-Fi service availability.
- Take advantage of the many free resources available to entrepreneurs. Most accountants offer free consultations which will give you ideas for starting your own account system.
- Decide if you want online or desktop reporting solutions. If your answer is online, then know what will work best with your industry type before making a decision.
- Make sure you find an accountant who is familiar with small businesses and has experience in designing systems specific to their needs.
- Implement two-factor authentication for security purposes.
- Create customizable security roles to protect sensitive data.
- Implement usage guidelines.
- Investigate the various features offered by different providers including whether all users have full control over each feature.
- Find out how up-to-date their software updates are.
Conclusion: How to Build an Accounting System for Startups
Having a good accounting system in place will save you a lot of headaches down the road. This means having a system for tracking expenses, income, invoices, and payments. There are a lot of great accounting software options out there, so do your research and find one that fits your needs. This will help you keep track of your finances and make sure you’re categorizing everything correctly. This includes both business and personal expenses if you’re using a personal account for business purposes.
Dimensions for Facebook Advertising: Optimizing Your Facebook Ad
How to Choose a Business Partner: 10 Essential Tips
10 Sales Deck Mistakes That Will Ruin Your Business
How to Increase Brand Loyalty? 10 Ways to Keep Your Customers Coming Back