How to set up a system to take care of all your basic accounting needs.
Small business accounting systems are relatively easy to set up, once you know what you need. I’m going to outline those needs here. There are a few things you’re going to need for a manual accounting system that would be done for you in a computerized system. I’ll differentiate that for you.
I have set up many small business accounting systems, both manual and computerized, and even converted manual systems into computerized systems, so I can help guide you thru the steps to get you started.
If you’re just opening a small business, you’ll be starting from scratch. If you’ve already got a business going, but your records aren’t what you’d like them to be, you can always convert what you’ve got into a system that will work better for you.
So, let’s get started!
What do you need to set up your small business accounting system?
1. You need a separate checking and savings account. If you like, set up online banking for your business as well. Order checks and deposit slips with your company name and address on them, add your logo if you have one.
2. You will need a cash disbursements journal to track your expenses and other purchases. Please don’t just use your checkbook. Your checkbook journal may seem to be enough now, but it’s best to set up a separate journal, be it in Excel or in a pad of 13-column accounting paper. For more on this, see my page on the cash disbursements journal. If you’re using accounting software, the software takes care of this for you.
3. You will need a cash receipts journal, to track your receipts for sales collected. A pile of deposit slips just doesn’t cut it when you want to know which customer you made the most sales to. You can set up a simple Excel spreadsheet or use that same accounting 13-column pad you may be using for your cash disbursements journal. For more on this see my page on the cash receipts journal.
Just a note, accounting journals will automatically generate in a computerized accounting system. When you prepare a check or post a deposit, these are automatically added to the appropriate accounting journal.
4. Payroll files. Do you have or are you planning to have employees? Will you do payroll yourself, or hire a payroll service provider? Either way, you should set up a file for each employee. Go here for a more complete discussion on Payroll, Employee Payroll Forms, Employer Payroll Taxes, and How to Calculate Payroll.
5. For you computer users:
a. You will need to set up your company in your accounting software. Look for a “company” tab. Fill in your company name, address, etc.
b. You will also need to set up your customers and vendors into the system. Fill in name, address, terms (how often you pay…if you pay in 30 days, for example, use net 30), etc. for your customers and vendors. Remember, you can always add new ones later on.
c. Set up your employees as well. Fill in name, address, taxing information, etc.
d. You can individualize your invoices in most software packages. You can add your logo, change fields around or eliminate some if you wish.
6. Set up an initial Chart of Accounts. This is a list of Accounting Ledger Accounts you will be using, such as Cash, Accounts Receivable, Inventory, Equipment, Income, Rent, Insurance, Supplies, and on and on. For more on this, check out Sample Chart of Accounts. If you’re using accounting software, they have a chart of accounts for you to start with.
7. Put together an initial Balance Sheet. If you are just opening a small business, you won’t have much. Maybe you got a loan from your cousin-in-law for $5000, and bought $1500 in equipment.
Here’s what you’d have:
Cash of $3500
Equipment for $1500
Note Payable of $5000
Pretty simple, but this will be the beginning of your enterprise. This entry will be your opening journal entry in a computerized system. In a manual accounting system, just keep this initial Balance Sheet on file. You’ll need it for your business tax return. Also, this will be helpful in preparing a small business plan.
For more on setting up your first Balance Sheet, click here.
8. Set up a filing system. You should have what I call Current Files, for things you need access to regularly, and Reference Files, for things you need, but don’t need often. See my page on Accounting File Management.
9. Invoices – in manual small business accounting systems, you will need to buy ready made invoices, or make your own with Microsoft Word or Publisher, or even go to a print shop and have some made for you. You may also want Purchase Orders, if you plan on using them. For software users, invoices within the system can be edited as you like.
There you have the main steps for setting up a small business accounting system.
After these steps you will be able to buy materials and pay the rent, invoice your customers, accept payments and deposit the monies into your business account. You will then enter the information for your payments to your cash disbursements journal, and your deposits to your cash receipts journal. This will give you the information you need to prepare an Income Statement (a.k.a. Profit and Loss Statement) at month end to see how your small business is doing.
Have questions? Send me an email. Not sure if you really want to set up your own small business accounting system? Would you rather let someone else get things set up for you? If you’re looking for system set up services, or bookkeeping services, we can help. We have plans to fit all needs, however large or small. So whether you have a question or need my services, send me an email here.