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How to Set Up an Accounting System
Congratulations, you’re starting your own business!
Now you need to know how to set up an accounting system to manage finances and track expenses and income. The task isn’t as daunting as it sounds, and we can help you with this step-by-step guide.
Definition of an Accounting System
An accounting system tracks and records financial data. It allows business owners to pull reports and analyze data to make informed decisions.
Why an Accounting System is Essential
An accounting system allows your company to keep track of the money coming in and the money going out. Having an organized accounting system provides a clear view of cash flow and provides the necessary documentation during tax season.
1. Setup Business Banking Accounts
It’s important to always keep personal and business separate when it comes to finances. Having separate business accounts makes it much easier to locate payments received and paid. Here three types of business accounts you should consider setting up:
- Business checking account: Keep track of expenses coming in and going out.
- Business savings account: Allows you to save for large business purchases such as large equipment.
- Tax savings account: Helps businesses set aside money for taxes.
Learn about business banking accounts from the U.S. Small Business Administration.
2. Set Up an Accounting System
The basic job of accounting is to track incoming payments and outgoing expenses. It is organizing the overall financial records of the business. There are a few ways you could track your business financials:
- The paper method: Some people still prefer to keep receipts in one box, paid invoices in another box, and then unpaid invoices in another. While this sounds easy enough, when tax time comes along, business owners have to sift through each box and add it all up.
- Spreadsheet method: This method is similar to the paper trail. All receipts and paid invoices are added to a spreadsheet either as they happen or once a year, right before tax time.
- Software method: The easiest way to manage receipts, invoices, and all financial aspects of your business is to utilize accounting software. We recommend QuickBooks, the #1 accounting software in the U.S.
3. Set Up an Invoicing and Billing System
Your business banking accounts and accounting software are the foundation of your accounting system. With those set up, you need an easy way to bring in payments to help fund your business and maintain proper cash flow.
The key to finding the right invoicing and billing system is to look for:
- Accurate detailed invoicing information
- Multiple ways to receive payments
- Intuitive reporting – everything tracked from the beginning of the customer relationship to payment
- Easy integration into your current accounting system
💡 For easy-to-use billing software that comes with exceptional customer service, we recommend Project 2 Payment for invoicing and billing. Project 2 Payment easily integrates with QuickBooks, so there’s no need to enter your invoicing and payments into two separate software systems.
Outsourcing Accounting Services for Small Businesses
If everything still feels overwhelming, you have the option of outsourcing accounting services. There are many certified accounting professionals who would take on your business’ financials for a small fee. The great thing about hiring a professional is that accounting is their passion, and they are experienced in everything related to business finance solutions.
Conclusion
Cash flow, the money that goes in and out of your business, is essential to keep all areas of the business operating. Setting up a strong accounting system with organized billing and invoicing is key to monitoring cash flow. With everything organized, you see how well your business is performing and you can dream about what the future holds for your business.