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From some things I've read here at Work It, Mom!, I get the impression that accounting is a necessary evil to many entrepreneurs, and not an aspect of their business that they muster much enthusiasm for (unless that's the service that their business provides, of course). Evil or not, it is indeed necessary, and finding a qualified accounting professional to handle it for you -- or at least to advise you -- is important from the beginning.
"Accounting" and "bookkeeping" are sometimes used synonymously, but they're not exactly the same thing. Bookkeeping is the straightforward process of financial recordkeeping; accounting involves making sense of it all. Your accountant may be the one who handles your bookkeeping tasks, or she may review the records someone else maintains and use them in analyzing and reporting your business' financial condition.
There are a couple of good places to start your search for an accountant. One is within your network, seeking recommendations from people you trust. Another obvious source is your tax accountant, if you have one, since a variety of taxes will be a fact of life for your business. However, like physicians, accountants often specialize, so it's possible that your personal tax accountant may not be the best person for your general business accounting, but she probably can suggest some prospects.
The most basic business record document is a checkbook and a check register. All the income your business takes in gets deposited into its own bank account, and business bills get paid from that account. That's the simplest bookkeeping there is -- other than "receipts in a shoebox," and please don't let that happen! -- and if that's all your business required, you probably wouldn't need someone else to deal with it. But it probably won't be, and that's where your accountant comes in.
These are some of the things that your accountant should be able to do for your business:
Work with you in developing the financial part of your business' operating plan, and craft that into a formal budget and financial projections, if necessary. This involves tasks such as identifying your likely sources of revenue and your anticipated operating expenses, and determining where start-up funding, if needed, may come from -- are you investing in your business from savings, raising funds privately, taking on debt, or some combination?
Establish your accounting system and chart of accounts. This may be based in Quickbooks, on spreadsheets, or in some other software package. This is necessary because your income and expenses need to be classified, and can't just all be dumped into that bank account.
Set up your receivables and payables. Your business's income and expenses aren't fully reflected by what happens in your bank account. You'll usually earn revenue for what you do before you get paid for it, and be responsible for expenses incurred before you pay them. Your customers get billed, and your vendors bill you; that's when the transaction goes into your records, for a more accurate picture of how your business is really doing financially. This is why having cash in the bank doesn't necessarily mean your business is making money, and also why a business can keep going even in a cash-flow crunch -- whether everything "looks good on paper" or not.
About the Author:
Florinda is a wife, mother, stepmother, blogger, and accountant employed by a Southern California nonprofit agency.
