1. When Setting Up Your Chart Of Accounts, Less Is More
Your chart of accounts is the complete list of all of the items you need to categorize your business activities and is there to help you understand where your company’s money goes and where it comes from. You can get very detailed when setting up the chart of accounts, but remember, the more time you spend in your accounting software, the less time you’re spending on revenue generating business activities.
Furthermore, information overload happens. And while it is important to have a level of detail that provides meaning to the users of the financial statements, having too many accounts can also lead to inconsistency in reporting (which leads to inaccuracy), as similar in nature transactions can be recorded to different accounts when too many options exist.
Your chart of accounts setup should be able to help you quickly categorize your transactions and, when financial reports are produced, be able to help you understand what’s happening with your business – so keep it simple. You can always run more detailed reports if you need to.
Ask yourself these questions:
What information do I need to see on my financial reports?
What information would help me quickly analyze my company’s numbers and tell me the status of my business?
2. Use The Online Banking Synch Functionality Offered By Your Bank & Accounting Software
You can spend time keying in data from one screen to another (or one spreadsheet to another), or you can do something that will save time. Today, most banking institutions offer an online accounting integration feature that gives banking customers the ability to direct download transactions into the customer’s accounting software. Leveraging technology like this can help you reduce data entry errors and missed transactions, as well as speed up the transaction recording process.
Below are just a few links to some of the major banking institutions’ accounting integration service pages:
Many other banking institutions offer such a service, including regional and local banks, so reach out to your banking specialist today to find out what options are available to you.
3. Establish Repeatable Procedures For The Accounting and Finance Functions
Establishing clear, detailed procedures produces a money trail and a system of checks and balances to prevent money from being unaccounted for. Make it clear, make it repeatable, make it predictable. This will help highlight any anomalies you should be aware of, as well as help identify ways to make your process more efficient.
There is always the risk that the person in charge of accounting for your company is gone in an instant. In that situation, whoever takes over those duties may need to figure out what was going on with only the data to guide them. Give them a chance, and save your business, by having all accounting and finance functions follow a predefined process.
4. Know Your Business Entity Type (Sole Prop, Partnership, S-Corp, etc.…) and Make Sure You Understand How That Impacts Your Accounting
The government allows certain tax advantages for business owners taking on the risk of opening and operating a business. Each entity structure carries its own advantages. Make sure you’re grabbing all of your rewards and not inadvertently causing errors because your accounting records aren’t setup to match your entity structure.
Payroll is a wonderful example of this. A sole-proprietor putting himself or herself on payroll, or a corporate officer of an S-Corp not being on payroll are examples of accounting being impacted by business entity type and conceivably causing unintended and unnecessary tax implications. Make sure your accounting structure matches your entity type and maximize all of your rewards.
5. Meet With a CPA To Get Any Questions Answered
How much money do you want to pay your CPA at year-end to file your taxes? If the answer is “More,” then don’t consult him or her on how to set up the accounting operations for your business. Every year, countless small businesses structure their accounting and bookkeeping system incorrectly, leading to entry mistakes, potential government fines and penalties, and errors that require fixing before taxes can be filed. As with all things in life: Do it once. Do it right.
For many small business owners, this is their first time doing any of this. Get things set up correctly from the outset, and seek some professional help if you have questions. The small expense will save you time, money, and stress in the long run.
Nth Degree CPAs is a boutique, high-value accounting firm in Seattle, WA that provides integrated tax planning and preparation with accounting and controller-level financial guidance for the small business community. Online at www.nthdegreecpas.com