By Ed Rappuhn – SCORE Nashville
“I am starting a business but accounting is a mystery to me. I know I need to keep records for tax purposes, but am not a “numbers” person.
You are absolutely correct in needing records for tax reporting, but accounting is so much more than that. A good accounting system can help you maximize the potential of your business. Your financial reports should show specific revenue sources and associated expenses. You can plan for growth by estimating the effect certain decisions will have on your business. Also, if you ever decide to sell your business, detailed accounting records are critical.
The first step in creating your accounting system is to have a business checking account allowing you to totally separate your personal and business activities. Your accounting system can be as simple as Excel spreadsheets that reflect all of your deposits and checks. Alternatively, programs like QuickBooks are quite simple to use and provide reports that are easy to understand.
Next, read some books about accounting and QuickBooks. Consider taking an Accounting Principles or bookkeeping class. If that is not feasible, attend accounting and/or QuickBooks workshops to remove some of the mystique.
You might hire someone to assist you in the set-up of your system. A system that is set up properly and then updated provides valuable information to run your business and also makes tax preparation relatively painless.
If you need ongoing assistance, a bookkeeper can handle transaction processing and produce monthly reports. Bookkeepers typically are reasonably priced but often are not Certified Public Accountants (CPAs).
CPAs have at least a college degree and have passed a grueling multipart exam displaying a strong understanding of accounting systems and business concepts. They are qualified to produce unbiased audits allowing outsiders to have confidence in your financial statements. Audits are required for certain bank loans, investor agreements, and potentially if you want to sell your business.
Even if you do your own bookkeeping, two areas of outside assistance I normally recommend are payroll and taxes. Payroll firms make sure your payroll and payroll taxes are computed correctly and paid and reported on time.
Outside tax preparation generally pays for itself by finding deductions you have missed or catching mistakes you would have made, thereby avoiding late fees/penalties or worse.
Accounting does not generate revenue. You do that by producing, marketing and selling a valuable product or service. Accounting does, however, help you detect revenue sources that are underperforming and identify expenses that can be reduced. A good accounting system can contribute to the profitability of your business just like selling more widgets.
Ed Rappuhn is a mentor, workshop facilitator, and the past-chair of SCORE Nashville. SCORE mentors guide entrepreneurs in starting and growing their businesses. Sign up for a free SCORE mentor, find out about our reasonably priced workshops and other services, or volunteer to become a SCORE member at www.scorenashville.org. Email questions about your business to firstname.lastname@example.org watch for the answers in future columns.