Accounting, by far, is one of the most important elements of both starting, and operating any small business. It is very easy to be caught up in the glamorous start-up tasks of business card creations, name choosing, website design and so on, yet without a genuine understanding of the accounts, your business will simply not survive.
Get it right the first time
The world is awash with former business owners who failed, simply because they chose to ignore the financial side to business ownership - and discovered too late just how important this aspect is. Of the 80% of small businesses to fail within their first 12 months you can almost guarantee that a failure of grasping margins, cash flows and budgets played a crucial part in the failure of their businesses. According to a study run by the Small Business Administrations Group, 29% of businesses declare bankruptcy cite problems with the financial structure of their business as their main cause of failure.
Cash and Accrual accounting, are the two generally accepted methods of accounting. Some small businesses have the choice between the two, whereas others are legally obligated to use the accrual method. This is a method that shows your financial health in real-time, and the majority of accounting software applications simple this process. Transferring from the cash system to accrual is extremely easy, it’s simply boils down to checking a box in your accountancy software, and then the rest is done for you.
Hire a Professional
If you have a degree in accounting or are a mathematical genius then there will be no need to hire in additional help, however, if you’re not then this could be your saviour. A professional can be employed to set up your accounting system, but do you hire an accountant or a bookkeeper?
Although every business start up situation is unique, most of them do (or should) begin with a bookkeeper. Services provided by a bookkeeper make sense for the average business, where there are no plans to build an empire. Your bookkeeping can help you to begin with a good record keeping system, to produce financial statements and handle financial transactions.
An accountant’s help is usually required for growing businesses, which have more complex structures. They can also be highly beneficial when it comes to expanding your team and hiring in new staff.
In the beginning of your business start up, you may be working part time or even from home to keep your expenses low. The price of an accountant who's to be paid on a monthly basis can be out of the price range for the one-person business. Either prepare your own books or have a bookkeeper involved in the earlier stages and reach out to an accountant for your end of year tax planning matters - therefore paying after 12 months of business when financial means should be more readily available and expenses will not be taken from your development budget.