Top Four Tips for Implementing a Bookkeeping System
There are tasks that most entrepreneurs know they need to complete before they open the doors of their business for the first time — hiring staff, marketing their product or service, and choosing a business structure, for instance. But one of the most important tasks is also one of the most overlooked: setting up a bookkeeping system.
We spoke with two accountants-turned-small-business-owners about why getting a solid bookkeeping system in place should be a part of your pre-opening checklist. Here are their top four tips:
1. Do It Right the First Time
When it comes to finding and implementing a bookkeeping system, it’s important to make sure everything, from your processes to your staff, is in place before opening day. It's a lot harder to retroactively implement new software or processes than it is to take a little longer in the beginning to ensure that everything is in place.
"Starting off on the right foot when you just launched a business is the key to financial success," says Carrie Smith, owner of Careful Cents. Smith quit her full-time accounting job in May 2013 to start her own business. Now she helps small-business owners tackle difficult financial situations.
"Unless you want to pay tons of extra money in professional fees [for lawyers and CPAs] as well as tax penalties, you should be open to investing in a good system right from the start."
2. Define Your Needs
When researching bookkeeping systems on the market, look for a program that can handle all your tasks, both current and future. Even at the outset it’s smart to think farther down the road, when your business will be growing and your needs changing, because switching bookkeeping systems later may be a hassle.
"A good bookkeeping system is one that works for your current needs, as well as being scalable to handle future growth and expansion" says Eric J. Nisall, the founder of AccountLancer. He helps “solopreneurs” and small-business owners transition to self-employment by helping them set up a bookkeeping system.
"Spreadsheets are okay for simply tracking and sorting transactions, but as a business grows and the volume multiplies, that system gets outdated very quickly," he says.
3. Set a Budget — and Stick to It
The early stages of starting a business can be fragile financially, but there are plenty of accounting programs on the market that won’t break the bank. Besides, the most expensive software doesn't always mean it's the right fit for your shop, says Nisall.
"Just because a certain program is said to be the best doesn't mean it's necessary to spend the money, particularly when you are starting out,” he says.
Stay away from custom accounting programs, he warns, because a non-custom program can usually accomplish similar tasks at a much more affordable price.
4. Determine Who Will Manage the Bookkeeping
It's a misconception that bookkeeping tasks can be 100 percent outsourced to a third party. Finding a good balance between in-house and outsourced accounting can help your business run more efficiently.
Some tasks, such as coding transactions, maintaining accounts payable/receivable, and financial reporting, are good candidates for outsourcing. Offloading these tasks can free time for in-house staff to focus on activities that grow the business.
Cash transactions are one area that should be handled by in-house managers, because cash flow is vital to keeping any new business afloat. With cash transactions handled internally, someone on site will always know who owes what, who needs to be paid, and how much is available at any given time. In-house accounting managers should also have direct access to management, and vice versa.
"Management needs to have direct access to the books, and they need to be updated in real time to help avoid billing and payment issues," says Nisall.