How do you set up accounting systems for a new business?
Setting up accounting systems is an essential part of being a business owner or manager. Get it right from the outset, and you’ll save yourself – and your team – a whole lot of time, effort and money too. Get it wrong, on the other hand, and it could end up costing your business.
Of course, no two businesses are identical, so it’s not surprising that accounting systems, and the tools used to make them more efficient, vary quite widely. Numerous factors impact your accounting solution, including the sector that you’re involved in, the anticipated annual turnover and the number of staff that you employ. This being said, there are certain rules that every business should follow.
Open a dedicated business bank account
Even if you’re operating as a sole trader, the first rule of accounting is to keep your business and personal transactions completely separate. Open a dedicated business bank account, or at least establish a separate set of payment cards for your business, enabling you to monitor and manage your business expenditure with ease.
You can opt to integrate your bank account with your accounting software package, which helps with keeping track of all your incomings and outgoings too.
Choose your accounting method
You have two options when it comes to selecting the method for keeping track of your accounts.
- The Cash Method requires you to keep track of actual incomings and outgoings as they occur. So you only need to include invoices once paid, which makes this system the best option for small businesses.
- The Accrual Method tracks incomings and outgoings from the point of sale, even if you haven’t yet received the payment. Larger businesses, as well as those who make use of invoicing systems, tend to favour this option.
Annual turnover is a factor here, and it is wise to seek professional advice concerning HMRC thresholds for cash accounting.
Set up a Chart of Accounts
Most businesses will require several different accounts, for example, one for income, and one for assets and expenses. So your business chart of accounts is your business listing of each account within your accounting system. Depending on the size of your business, you can opt to use a dedicated software package that will help you with this aspect of accounting. Some companies may prefer to use the services of a professional bookkeeper or accountant.
Update your accounting system every day
It’s easy to let receipts, bills and invoices pile up until you have a confusing muddle of paperwork. Make a point of updating your accounting system as often as possible, so that nothing gets left to chance. Regularly updating expense records and filing receipts will make it much easier when it’s time to file your tax return. Additionally, keeping your expense accounts up-to-date enables you to stay on top of emerging trends. If you find this hard to stay on top of, check out our guide as to how best to keep up to date with expense management.
Reconcile your bank statements every month
It’s an arduous task, but reconciling your bank statements with your accounting system helps to keep your business finances on track. The larger your business and the more employees that you have, the higher the controls you need to put in place to make sure nothing gets overlooked.
Introduce controls for expense management
Handing out company credit cards to employees is one way of enabling staff to handle their expenses. Even the best business credit cards must have limits. Cards should also be closely monitored to prevent overspending. Lack of credit card availability for staff can lead to cards being ‘borrowed’ which creates problems.
Petty cash isn’t always the best option either. Some employees are bound to find themselves funding their expenses, which causes resentment. It isn’t easy to keep track of large sums of money, particularly when several people are making requests at the same time.
Companies might like to consider business prepaid cards. Each employee has a card, governed by specific rules and limits unique to that user. A centralised dashboard keeps track of every transaction, allowing cards to be topped up as needed so that funds are allocated on an ‘as needed’ basis. Receipts can be photographed and uploaded to the expense accounting system too, so there’s no need to worry about losing pieces of paper, or updating complicated spreadsheets.
Here at Soldo, we know how to make light work of your business expense accounting needs. Our prepaid cards and software handle all of the administrative tasks associated with filling out expense forms.