Accounting 101: ten start-up tips

If you’ve recently started your own business or you’d like to optimise your current processes, check out these handy tips to make accounting work for you.

1) If nothing else, understand cash flow, gross profit and break-even

One of the nice things about being the owner and manager of your own business is that you don’t have to account to anyone else. OK, sometimes you have to show a financier just how well you’re doing, and once a year you have to show the taxman just how badly you’re doing, but that’s it. You can simply outsource the entire process to an accountant, and as long as he sorts out the tax, you’re happy.

The problem with this approach is that you miss all the powerful survival tools buried in your accounting system. So, distinguish yourself from the many struggling business owners out there by actually getting to grips with the concepts and processes of accounting.

The good news is that you don’t need to register for a BAcc. Just focus on these three key, financial concepts: cash flow forecasts, gross profit percentages and break-even points. They are the most important financial management indicators for your business because they provide vital feedback about your company’s current and future performance.

2) Get to understand financial statements

After getting to grips with these concepts, your next step is to understand financial statements. If you understand a cash flow forecast, you can read any cash flow chart. And after mastering a cash flow forecast, the income statement and balance sheet are next. They are not as crucial to short-term survival as a cash flow forecast, but you can’t really understand the underlying workings, strengths or weaknesses of a business without them.

You don’t have to be the one who compiles these statements out of all the thousands of transactions in your business - leave that to your bookkeeper or accountant. But you do need to know how to read them and interpret them.

3) Choose an accountant who can train or mentor you

If, like most business owners, accounting is not your main area of expertise, then hire an accountant. But don’t hire an accountant simply to take care of your books so that you never have to worry about them. Hire one with the understanding that part of his task is to train you in accounting. Pay for an extra hour or two every month – or even more – to go through your financial statements with him to make sure you understand them.

If accounting is your area of expertise, then hire a bookkeeper because you are already knowledgeable enough to check the capturing is done correctly, and can draw up and read financial statements to see where your business is going.

4) Delegate capturing as soon as possible

When starting out many business owners have no choice but to capture their transactions into a basic start-up accounting package themselves. That’s fine, but you need to strive to delegate this function as soon as possible so that you can spend more time on managing other aspects of your business. But beware, it is the capturing of transactions that you must delegate, not the entire accounting function.

You will need to decide whether to train up a staff member, such as an office assistant or a receptionist, to capture the data, or whether to outsource it to your bookkeeper.

5) Choose an accounting solution that suits your current and future needs

Depending on the size of your business, whether you capture your transactions in-house or outsource it to your accountant, or whether you hire your own bookkeeping and accounting staff, you have to choose the accounting package that most suits your business’s needs. Also check that there’s an upgrade path to cater for your future growth.

Softline Pastel offers the most comprehensive range of accounting software, from the do-it-yourself package My Business through to Pastel Evolution. Your choice also depends on what functionality you require. For example, do you need a stock-control system or do you need CRM functionality. Also, as your business grows, your needs will change. Keep an eye on the next product in the range to see if it better matches your growing requirements. Either way, don’t take the decision without the help of a good accountant.

6) Stick to your accounting cycle

One of the most critical aspects of any accounting system is the accounting cycle.  This is true whether you outsource the accounting function or keep it in-house. In order to make sure that you get reliable, timely information from your accounting system, you have to make sure that reliable, timely information goes in. And your starting point is to set up an accounting cycle for your business.

Scrutinise your financial statements once a month with your accountant. This means your bookkeeper needs to finish capturing the required data on a certain day of the month or week to be ready in time for the meeting. Crucial data from stock-takes need to be gathered in time. And it is important to allocate a specific day of the month to check that all new invoices have been sent out, and outstanding debtors are contacted. As an overstretched business owner it is easy to neglect such a system in favour of what may seem like more important tasks. But resist the temptation. A well-managed accounting cycle makes other crises in the business so much easier to handle.

7) Align your system with that of your accountant’s

You can save a lot of money if the processes in your business – the gathering of transaction data, for example – are closely aligned to those of your accountant because the easier it is for your accountant to take the information you give her and draw financial statements, the sooner you’ll know what’s going on in your business.

For example, handing over a shoebox full of slips is expensive because you can be sure your accountant will charge you for the extra time it takes to sort. Ideally, the financial statements used in your monthly meeting with your accountant shouldn’t be more than a few weeks old.

8) Set aside time each day to work on your accounting system

Your accounting system is easily neglected because it is rarely urgent, except perhaps at tax filing time. But if you keep and use it diligently, it can help prevent so many urgent problems from arising.

The best way to maintain and improve your accounting system is to spend a bit of time on it every day, even if it is to learn something new. If one of your staff members captures transactions, make sure this work is done properly.

9) Don’t let your accounting become dependent on one person

A business whose books are only ever kept by one person is in danger of being defrauded. This is especially the case where the owner doesn’t really understand books and doesn’t take an interest in financial management. Make sure your bookkeeper or other staff members who handle your accounts do it in such a way that anybody can take over their job at any time. When your bookkeeping staff take their annual leave test their transparency by allowing someone else to take their place while they are off.

10) Regularly evaluate the cost-effectiveness of outsourcing your accounting

At a certain stage of a business’s development the cost of handling the capturing/bookkeeping type activities through an accounting firm becomes too expensive. It becomes more cost effective to let in-house administrative staff take over. The accountant then only comes in at the final stage to check the accuracy of the books and help you analyse the financial statements. 

You may grow large enough to require your own in-house accountant. Your decisions about this, as well as your accounting software should be reviewed constantly to make sure both fit the needs of your business.