Accounting Methods for New Entrepreneurs
October 13, 2021 2022-02-02 18:11Accounting Methods for New Entrepreneurs
admin Opening your own business can be new and fun, but don’t forget that running your own business comes with other tasks besides advertising and marketing. Although a social media presence and a website are important in your business, having accurate accounting is what ultimately leads to business success.
What is Accounting?
Accounting is the process of keeping track of income and expenses. Income is all the money received from customers while expenses are anything that is paid for that directly relates to the business. Common expenses for a new startup include advertising, marketing, product development, office supplies, bank charges and professional fees. Furthermore, accounting involves monthly reconciliations and report creation to ensure everything is accounted for and accurate.
Different Types of Accounting Methods
There are a few different accounting methods that you can implement when you are a new entrepreneur. Your business size will determine which method you should utilize. If you are a small startup with minimal revenue and expenses, doing your bookkeeping in an excel spreadsheet would be sufficient. You would have to manually record each transaction to generate your income and expense totals. Manual bookkeeping can save you the costs associated with purchasing a software, but it can also be time consuming depending on your level of expertise. An excel spreadsheet would also be good if you report your income on a Schedule C instead of filing a separate business return. Sole proprietors and single-member LLCs often report income on a Schedule C, leading to no balance sheet being required, just an income statement.
However, if you are expecting business growth or are planning on filing a business return, you might want to consider investing in a software. There are many different accounting software programs on the market, meeting different needs. For example, if you are in the construction or manufacturing industry, you should look into a software that tracks inventory. Common software programs include QuickBooks, Wave and FreshBooks. QuickBooks gives you the ability to start with a lower software package and upgrade as you go, saving you costs along the way. All basic software programs will give you the ability to complete monthly bank reconciliations, create valuable reports and track business growth.
What Should I Have an Accounting Method?
Choosing a method to keep track of accounting is necessary for every organization, whether that be through excel or a software program. Regular accounting can lead to the production of valuable financial reports, such as the balance sheet and income statement.
These reports track business growth and can be used to project future sales and operating expenses. Having an understanding of where your business stands throughout the year will allow you to make more informed decisions and implement effective cash flow management policies. The balance sheet and incomes statement will also be used to file the year-end tax returns, so having the information entered well before year-end will reduce your stress levels and workload burden.
SUMMARY
Accounting should be your main focus as a new entrepreneur to ensure you are building a financially healthy company. Other aspects of running your startup, like advertising and marketing, are important, but they should not be your only focus. Carefully analyze these methods to choose the best one for your business.
