Accounting is an important part of a company’s operations. The manpower, resources and finances needed for an accounting department for companies that are just starting out is simply indispensable. However, some choose to put off accounting to a later date thinking there must be sales to account for first and mainly because of costs.
Though it’s easy to get caught up in the glitzy tasks that come with operating a business, accounting is the meter with which one can gauge how the business is going – which is why it is easier to set up and manage your finances accurately from the get-go.
Ignoring the financial side of the company’s operations is the sure-fire way for things to go downhill. Without a clear idea of your margins and cash flow, you might not even realize that you’re operating at a loss. Consider learning basic accounting as taking responsibility for entrepreneurship.
There are two basic accounting methods for your business: the cash basis and the accrual basis.
The accrual basis works on a record-per-occurrence basis: income and expenses are noted as they occur, regardless of whether cash has changed hands. The moment an invoice is generated—regardless of whether the cash is actually collected—the sale enters the records. According to the Generally Accepted Accounting Principles (GAAP) Regulations, the accrual method is required for corporations that are publicly traded or whose sales revenue over a three-year period exceeds $25 million.
Startups, cash-based businesses and small service companies, however, would do well to consider learning the cash accounting method.
The cash method is simpler: the records match only the actual flow of cash in and out of the business. Income is recorded when it’s on hand, and expenses are noted when they are paid. This setup would work better for sole proprietors and businesses with no existing inventory yet.
Now that we have discussed the importance of accounting for startups, you’re probably thinking of where to start. There are some basic accounting disciplines you would do well to learn and practice.
Take note of everything your company owns. From cars and computers to furniture and plants—make a listing complete with the model number, registration number, warranty period, service center, and date of purchase. Start from the moment you acquire them, so it will be easier to update.
Take note of both the physical cash in the box and the signoff. You may keep a basic excel with a balance column formula or create multiple excels when you are dealing with different petty cash sources coming from different people from different locations.
Keep original copies of bills in a file. Avoid bills without tax registrations. You may also ask yourself: what if you do not have the capability to do your own business accounting? Well, you could always dip a toe into cloud accounting – and you can keep a very detailed and updated list of your expenses and access them anywhere and anytime.
The cloud platform offers a wide array of possibilities, especially when combined with bookkeeping and accounting. If you're a startup trying to get on your feet, you may want to check out the tremendous capabilities that cloud-based software proffers— all from automating manual bookkeeping tasks to providing integrations that expand functionality outside accounting work.
Another smart way to handle your business finances is by hiring a professional who knows the ins and outs of F&A processes. With their expertise in accounting, plus their prowess in maximizing cloud-based software, managing your numbers will be as cost-efficient and structured as possible.
When it comes to accounting, the services provided by an accountant are imperative. You have two options when it comes to this: hire an in-house accountant or outsource a business accounting service. You can check out our blogs if you want to know more about outsourcing your functions to a reliable partner.
Check out D&V Philippines' suite of finance and accounting services or you can grab a copy of our whitepaper Outsourcing: How to Make it Work to know how we can make outsourcing engagement work for your growing business.