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Setting up an accounting system can, however, be intimidating for many startup business owners.\u00a0 Accounting can be technical and requires an understanding of certain terminology to be most effective.\u00a0 Prior to technology, business owners would either have to outsource their accounting or hire a team to take care of various entries and ledgers and consolidations.\u00a0 These days however, there are a number of software and apps that can significantly simplify the process and allow any business owner that has a genuine interest in understanding their own data to do it themselves.\u00a0 Answering the following questions can help you determine whether it makes sense to do it yourself: <\/p>\n
Probably the best time to set up your own accounting is when you are a startup or new(ish) business owner. \u00a0This is because you likely don\u2019t have that many transactions and you might have some time on your hands while waiting to build up your business.\u00a0 Additionally your requirements are much simpler in the early stages than when your business starts to become more established and consequently more complicated. \u00a0 <\/p>\n
One piece of advice that I give most business owners that are just starting up is to set up a separate bank account <\/a>and credit card that are used mostly for business.\u00a0 There are many advantages to a separate business bank account, one of which is that accounting software such as Quickbooks<\/a>, Xero and Wave accounting all allow you to download your transactions directly thereby reducing massive amounts of time (and tedium) on data entry <\/p>\n If you expect your startup to only have a small number of transactions, it might make sense to do your own accounting as these can be fairly easy to track with the right accounting software.\u00a0 <\/p>\n If you send invoices to customers\/clients yourself, then setting up an accounting system right from the outset makes a lot of sense as this is a significant part of the work.\u00a0 All accounting software <\/a>has the functionality to create and send invoices (many of them also have time tracking).\u00a0 With most software you can email invoices to your customers from within the software and some even allow you to collect customer payments <\/a>by clicking a link on the invoice.\u00a0 (this requires an initial setup with the software but once done can be a fairly seamless process).\u00a0 Payments collected directly are then posted and reconciled thereby saving time.\u00a0 <\/p>\n For some businesses having access to real time data can significantly benefit their operations.\u00a0 For example if you sell handbags, you might need to track exactly what you have in stock at any given time and ideally you can depend on an accounting system to give you this information. \u00a0If your operations are still relatively small, and you are already entering your own invoices, it is fairly easy to enter the other transactions to ensure you are up to date.\u00a0 <\/p>\n Further to point 5, some businesses need to know exactly where they stand with respect to their cash flow<\/a> at any given time.\u00a0 Review of your bank balance gives you a sense of this, however, it does not tell you how much you owe to vendors or how much you are owed from customers.\u00a0 Additionally you might loans or interest payments that are coming due or you might have other purchasing commitments that have to be met.\u00a0 If this is the case, you might want to consider doing your own accounting until your business is big enough to outsource or hire a bookkeeper. <\/p>\n Having some experience with general purpose software and\/or cloud based apps is an important consideration when evaluating whether you should do your own accounting.\u00a0 If you haven\u2019t used technology much, the learning curve for a new accounting software will be steeper and as such will require a bigger time commitment.\u00a0 <\/p>\n Do you have a sense of excitement when you see how your business is doing? Do you enjoy seeing how all the numbers come together and looking at your profit and loss? When you see your numbers are you interested in deeper analysis \u2013 eg. analyzing your sales<\/a>, customer behaviour, what products or services are most popular etc.\u00a0 If so, doing your own accounting helps you be closer to your numbers as you have a better understanding of the flow from original transaction to the final report eg. when you enter an invoice it shows up a sale on your profit and loss. <\/p>\n Since most business owners are not accountants, there are some technical transactions and treatments that can be difficult to wrap your head around.\u00a0 The day to day of entering your transactions can be fairly straightforward but it helps to have a resource to whom you can turn to when you are not sure how to do something as this can help with you avoid mistakes that many small businesses make<\/a> which can take some time to undo or worse, result in incorrect reporting. <\/p>\n Businesses have various tax obligations<\/a> which are dependent on structure i.e. sole proprietorship vs corporation<\/a>, if they have employees\/payroll obligations<\/a>, are they registered for sales tax <\/a>etc.\u00a0Some of the tax reporting is fairly straightforward and can be done by the business owner with a little bit of guidance.\u00a0 However, as your startup grows in size, these obligations can become increasingly complex.\u00a0 As such it might make sense to do your own accounting while outsourcing your tax obligations to an accountant.\u00a0 <\/p>\n In the past doing your own accounting was time consuming and usually not worth the business owners limited amount time, which could be more valuably spent elsewhere. However, \u00a0cloud based accounting software has changed all of that as it significantly reduced the amount of time and knowledge it requires to do your own accounting.\u00a0 There are also numerous online courses and training available to help business owners navigate their accounting making something that used to be quite inaccessible much easier to navigate.\u00a0 <\/p>\n<\/div>\n3.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 How many transactions do you have a month?<\/strong> <\/h2>\n
4.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Do you prepare your own invoices for your clients?<\/strong> <\/h2>\n
5.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Do you want real time data?<\/strong> <\/h2>\n
7.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Are you comfortable with technology?<\/strong><\/h2>\n
8.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Do you like numbers especially as they pertain to your business?<\/strong><\/h2>\n
9.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Do you have an accountant or an accounting resource that is accessible for questions?<\/strong><\/h2>\n
10.\u00a0\u00a0 Are you comfortable doing your own tax reporting?<\/strong> <\/h2>\n