For new and growing businesses, accounting may not be the most exciting topic for owners, however, it's good accounting that will keep a business alive and prepared for what is around the corner.
A business will never survive without a strong accounting team and making the right decisions from the start, as an owner or manager, will set a business up for success. These are 5 common decisions that must be made for new and growing businesses.
Tracking Income and Expenses
This seems like a pretty obvious one, but businesses should have an established way to track income and expenses. With today's software solutions, it's best to not bother with manual processes and adapt accounting software from the start that will provide quick, easy, and accurate data tracking.
Software that offers extensive accounts payables (AP) and accounts receivables (AR) processes will keep business owners confident that money is being received and invoices are being paid in a timely manner.
Tracking Assets, Liabilities, and Capital
Creating and having the ability to create balance sheets and other financial reports is critical for a business that is new or growing. It keeps the assets, liabilities, and capital in check. Assets represent anything a business owns, such as cash, inventory, and equipment, while liabilities represent things the business owes, such as loans or other debt.
With the right software, cash flow statements can be created with ease to monitor the cash in-flow and out-flows for the business. This will give owners a clear picture of how money is being spent and the rate at which it is being received.
Establishing a Budget
A budget is a very important aspect of a new or existing business. Setting plans and identifying opportunities that will keep the business operating, as well as accelerating growth, all fall into the budgeting process.
In addition to creating an initial budget, the budget should be adjusted and referenced frequently with rolling forecasts. A useful tactic for finance teams is to utilize rolling forecasts throughout the year.
Businesses that regularly visit their planned budget throughout the year, to check in and compare where they are, to how much of the budget was allotted allow everything to be kept in check and an easier process when budgeting for the following year. Rolling forecasts typically extend 6-12 months into the future to give businesses the ability to better allocate resources and prepare to manage through any disruptions.
Choosing Accrual Basis or Cash Basis Accounting Method
Every business must pick a method of accounting to abide by from the start. Businesses must choose between cash basis or accrual basis accounting. Most companies go with accrual accounting.
The primary difference between cash basis accounting and accrual basis accounting is in the timing of the recognition of expenses and revenue. The cash approach recognizes expenses and revenue much faster than the accrual method. The accrual approach is more focused on predicted expenses and revenue down the line. Cash basis accounting is centered on recording transactions when cash changes hands meaning it is that much easier to implement.
Hire an Internal Bookkeeping Team or Outsource
Not every business owner is an accounting professional, and they shouldn't have to be. However, a start-up or business that is experiencing a period of growth is going to reach a point where the bookkeeping must be managed by a bookkeeper to stay up-to-date and accurate.
At the end of the day, the accounting and bookkeeping functions of a business are what ensure business owners have the information they need to make sound business decisions. This is why hiring a full-time bookkeeper is a worthwhile investment for a new or existing business.
There are a few options when it comes to hiring a bookkeeper. A full-time staff member of the business, an outsourced in-person bookkeeper, and an outsourced virtual bookkeeper. Both in-person options have the benefits of exactly that - being in-person. However, these options will often cost more and lack the flexibility and scalability that an outsourced virtual service provider can typically offer.
An outsourced service provider like AccountingDepartment.com provides a full department takeover that handles all of the business's bookkeeping to ensure efficient and accurate bookkeeping, reporting, and more. Additionally, there are infinite options to scale as a start-up (or existing) business grows, removing the need to hire more in-office personnel, training, etc.