Accounting is unquestionably one of the most crucial components of founding and running a successful company. As a result, business owners should be cautious. While it's easy to get caught up in the fun of designing your website or coming up with the right business name, you won't be able to survive without a good grasp of the numbers.
Former business owners who ignored their financials only to find too late that they were running at a loss, not a profit, litter the streets of entrepreneurship.
one-third of small businesses fail due to financial mismanagement.
The Small Business Administration (SBA) has put together a list of the top 11 reasons why small businesses fail. Four of these roughly a dozen reasons are related to a small business's financial structure. The number one blunder made by businesses, according to the SBA, is “thinking you can do everything alone.”
Hiring a Certified Public Accountant
You should hire a professional to set up your accounting system unless you're a certified numbers wiz or have a degree in accounting. The first question you should ask yourself is whether you should engage a bookkeeper or an accountant to help you with your small business accountants and financials.
What Can a Bookkeeper Do?
Although each circumstance is different, most startups can start with a bookkeeper. A bookkeeper's services are appropriate for straightforward start-ups with no plans to expand. A bookkeeper can help you set up a reliable record-keeping system, manage your finances, and prepare your financial statements.
What Can an Accountant Do?
If you plan to expand your firm or have a sophisticated business structure, such as a limited liability company, hiring an accountant makes sense. If you start adding more staff to your payroll, you should also consider employing an accountant.
To keep costs down, many entrepreneurs start a part-time business or work from home. If this is the case, hiring an accountant on a monthly basis can be prohibitively expensive for a one-person operation. Prepare the books yourself or hire a bookkeeper on a project-by-project basis. After that, you can hire an accountant to help you with your year-end tax planning.
Accounting Methods: Cash vs. Accrual
There are only two types of accounting procedures that are widely accepted: cash accounting and accrual accounting. Some small businesses have the flexibility to choose between the two, while others are forced by law to employ the accrual system. Check with a financial expert (ideally an accountant) to discover if the accrual technique is required.
The accrual method of accounting displays your financial health in real time, and most accounting software packages make the process of accrual accounting simple. It's as simple as checking a box in your accounting software to go from cash to accrual, and the system will take care of the rest. If you manage a small, low-revenue business, though, don't feel obligated to use the accrual approach.
