Good accounting is the foundation for the financial success of a business of all sizes. Efficient accounting systems help you keep track of your income and expenses, manage cash flow, and ultimately make informed decisions about the future of your business. But setting up a proper accounting system isn’t always easy—especially for new companies. Creating an effective accounting system requires careful planning and thoughtfulness to ensure accuracy, efficiency, and compliance with applicable laws. In addition, new business owners often need help navigating how to set up their accounting functions if you’re a new business.
Here are five steps for setting up a successful accounting system for your new business.
Choose the right accounting software
The right accounting software can help you manage your finances efficiently, give you the necessary information and save time. While accounting software has many features in common, here are a few considerations to help you pick the one that fits your business:
Ease of Use
The software you pick should have an intuitive interface that is easy to navigate for you or employees involved with your accounting function.
Whether you’re thinking about an invoicing system, inventory management, or banking, some accounting software can handle all sorts of transactions. Other software will seamlessly fit in with other software you plan to use. When considering the software that fits your needs, consider whether it can integrate with other software you plan to use in your business.
As your business grows, so will your accounting needs. Consider if your accounting software will scale with you in your next business phase or if it offers simple options for transition to new software if needed.
The right accounting software should fit your budget. While it is essential to consider if a potential software can scale, it must also serve your needs today.
The right accounting software for you will balance the considerations above. Your accountant or CPA can help guide you through the process and even help you implement the right software for your business.
Set up accounts and categories
Once you have selected your accounting software, the next step is building the foundation of your system with accounts or categories of transactions. Your chart of accounts is like a map of your finances, allowing you to easily track and categorize income, expenses, assets, and liabilities. Setting up your chart of accounts should be done before entering any financial transactions into your accounting system.
Your chart of accounts should cover the most common types of financial transactions, such as income from sales, vendor expenses, payroll costs and taxes. The categories you use in your chart of accounts should make sense for your business and help give you an accurate picture of where all your money is going.
Organize contracts, invoices and financial documents
Typically each transaction you record will stem from invoices, contracts or other documentation. Therefore, organizing and creating a system for record-keeping is essential to the success of your accounting system.
You can set up a physical or digital filing system to organize your financial documents, such as invoices, receipts, and bills. This will allow you to ensure that all transactions entered are accurate. In addition, some software will allow you to upload backups or even record certain transactions when you issue an invoice or record a payment, which can help optimize your accounting workflows.
Create processes, procedures and controls
The right processes and procedures can help make bookkeeping and accounting function faster and more efficiently. Establish rules for how financial transactions are recorded, who is responsible for handling them, and when tasks are to be completed. Internal controls are processes and procedures in place to help protect your business from fraud or errors.
Some internal controls that are best practices for businesses of all sizes include:
- Setting limits on who can authorize transactions.
- Segregation of duties among employees – such as setting up a vendor payment and approving payments.
- Creating access control protocols for banking and financial information.
- Having a system for reconciling accounts.
- Regular reviews of financial statements.
Ensure all your employees who handle financial matters are adequately trained and understand the procedures and processes in place. Proper documentation can help current employees understand their roles and responsibilities. And in the event of employee turnover, it will be easier to train new staff on the procedures of your accounting function.
Once your accounting system is set up, it is essential to review the process to ensure it fits your business’s needs. You must regularly review and monitor your financial performance to ensure your business remains financially healthy. This includes analyzing key figures such as cash flow, profitability, and expenses. Your accounting system should provide you with accurate and relevant financial information regularly. If it does not, you may need to tweak your workflows to ensure they fit your business’s needs.
At KSSP Partners LLP, our experienced Chartered Accountants provide modern accounting and bookkeeping solutions to meet the needs of your growing business. Whether you want to implement a new accounting solution or outsource your accounting function, our knowledgeable and experienced accounting team at KSSP Partners LLP can provide clients in Markham, Toronto and across Ontario with innovative accounting solutions. To learn more about how we can help you and your business with all your accounting and bookkeeping needs, contact us online or by telephone at 289-554-5997.