Bookkeeping Setup Tips for Your New Business
Starting a new business is an exciting and challenging endeavor. Among the many tasks on your to-do list as you establish your business, setting up your bookkeeping system is among the most essential. Proper bookkeeping is not only a legal requirement, but it also helps you keep track of your financial performance and make informed decisions that can impact your company’s growth. Here are a few tips for setting up an effective bookkeeping system for your new business.
Choose a Bookkeeping Method
Before setting up your bookkeeping system, you need to decide which method you will use. There are two primary methods: cash basis and accrual basis. Cash basis accounting records transactions when money changes hands. Accrual basis accounting records transactions when they occur, regardless of when money changes hands. The method you choose will depend on your business structure and needs.
Why does this matter? Let’s look at an example: Your company wrapped up work on several contracts near the end of December. However, you won’t be billing those clients for the work performed until January 1st. So, which tax year does that income belong on? Do you report the income for those contracts after you receive payment for the invoice in January (cash basis) or now, since you’ve completed the work (accrual basis)? It’s important that you choose the way you’re going to do your bookkeeping upfront and remain consistent, because any errors or fluctuations in this can create problems with your taxes.
If you are a sole proprietor, cash basis accounting may be sufficient for your needs. However, if you have inventory or want a more accurate picture of your business's financial health, accrual basis accounting may be better. Consult with a professional accountant to determine which method is best for your business.
Set Up a Chart of Accounts
A chart of accounts is a list of all the accounts your business will use to record financial transactions. It is a crucial tool for organizing and tracking your business's financial information. The chart of accounts includes assets, liabilities, equity, revenue, and expenses. It is essential to create a chart of accounts that is specific to your business's needs.
If you are unsure of how to set up a chart of accounts, consult with a professional accountant. We can provide guidance and ensure that your chart of accounts is tailored to your business's unique needs.
Choose a Bookkeeping Software
Choosing the right bookkeeping software can help streamline your bookkeeping process and save you time. There are many bookkeeping software options available, and it is essential to choose one that is best for your business.
Consider the features you need, such as invoicing, payroll, and inventory management. Also, think about the size of your business and your budget. Some popular bookkeeping software options include QuickBooks, Xero, and FreshBooks.
Proper bookkeeping requires organization. Set up a system for storing and organizing your receipts, invoices, and other financial documents. It is essential to keep these documents organized and easily accessible for tax purposes and financial reporting.
You can use physical storage options like folders and file cabinets, or digital storage options like cloud-based storage. Regardless of the method you choose, make sure that it is secure and that you can access your documents easily.
Record All Transactions
Recording all financial transactions accurately is essential for proper bookkeeping. Keep track of all expenses, including receipts and invoices. Record all income, including invoices and payments received. It is essential to be detailed and accurate when recording transactions. This will help you stay on top of your finances and make informed decisions.
Schedule Regular Bookkeeping Tasks
Scheduling regular bookkeeping tasks can help you stay on top of your financial records. Set aside time each week or month to reconcile accounts, record transactions, and review financial reports. This will help you catch any errors or discrepancies early and stay organized.
Consult with a Professional Accountant
Setting up a bookkeeping system for your new business can seem overwhelming, but it is an essential task that can’t be overlooked. If you are unsure of how to set up your bookkeeping system, or you’re worried about your bookkeeping being compliant with industry requirements, contact Demian & Company, CPAs, today to consult with a professional accountant. We can provide guidance on the best bookkeeping methods and software for your business. We can also help you set up your chart of accounts and ensure that your financial records are accurate and up to date.