Setting Up An Accounting System

Setting up an accounting system is another way to manage your risk as a business owner, because if you let your books get sloppy it could sink your business.

There are two main ways to set up an accounting system:

1. Do it yourself.
2. Hire someone to do it for you.

There are pros and cons of each method.

If you want to do it yourself, your best bet is to use a program like Quickbook or Xero. While these programs do streamline the process, it’s still a time-consuming (and often confusing) task that can take significant time away from your business.

Since accounting is so important for managing your day to day affairs and managing your risk as a business, it’s usually a worthwhile expense to have somebody do it for you. There’s just too much that can go wrong if you try to do it yourself.

The good thing about doing it on your own is that you’ll have a much closer connection to your financials.

“Setting up an accounting system is another way to manage your risk as a business owner, because if you let your books get sloppy it could sink your business.” 

That leads us to the second option: hiring somebody to handle your books for you. As you can imagine, there is no shortage of bookkeepers and accountants who you can pay to look after your books.

The biggest pitfall of hiring another person to handle your books is that you could become disconnected from your business’s finances. You never want to let that happen. Losing track of your business’s financials is a surefire way to sink a new business.

If you choose to hire someone to do your bookkeeping for you (which is generally a very good idea), you still need to exercise adequate oversight of that person.

It’s very important that you hire somebody who can give you to-the-minute access to your financials. Programs like Quickbooks Online make this relatively easy.

A credential to look for when hiring an accountant is the CPA credential. CPA’s must pass a certification test, meaning that the state has deemed that person adequate to manage your books.

Just to give you a very basic overview of what an accounting system does, an accounting system breaks your money down into various categories. The important categories for business owners include accounts receivable and accounts payable.

Accounts receivable are funds that you have earned but not yet been paid on. In short, it is money that you are owed. If you’ve shipped your goods or performed your service and not yet been paid, that money is kept track of in accounts receivable.

Accounts payable is just the opposite – money that you owe to others (vendors, service providers, etc.). This is essentially unpaid bills.

Accounting systems also provide profit and loss statements and balance sheets. These two documents can give you a snapshot of your business’s financial health. They are also important because many lenders and investors will want to see a balance sheet before lending money or investing in your company.