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Accounting Systems for Entrepreneurs

Happy 4th to all my American friends!

This week, I’ll be covering accounting systems.

This is one of those topics that, depending on where your business is, will make your accounting system look very different.

If you’re just starting out, it shouldn’t take you more than a few hours to get completely sorted with accounting.

If you’re further along (and as your business grows), you will potentially be able to maintain a simple accounting system depending on your growth and company dynamics.

Fundamental Needs of an Accounting System

No matter what size your business is, your accounting system needs to do a few key things at a minimum.

  • Process Customer payments
  • Keep track of expenses
  • Manage tax information

Accounting systems can get very sophisticated, but as long as you’ve got these basics covered, you should be able to make do with a simple system for a good while.

I’ve worked with companies making $500,000 a year still using Google Sheets as the core of their accounting system.

A final note here before getting into some of the specifics. Much of your accounting system is going to be technology enabled, but remember to start with the Outcomes and process first, before looking at the technology.

Processing Customer Payments

Like anything else in Systems Thinking, start at the back and define how Customers are going to want to pay you. If your business is 100% online, you’ll have different needs or requirements than if your business is 100% in person.

Think through the Customer’s buying experience; ultimately you’ll want to make it as easy as possible for people to give you money.

Once you understand what it is you want for your Customers and the different scenarios you need to support for payments, you can start looking at payment processors.

There are lots of options here, but a general rule of thumb is that the more expensive processors will offer more functionality.

Pay attention to the options the processor has for Customer payment options like credit cards accepted, payment platforms (like Venmo) accepted, and integration options (like website shopping carts such as Woocommerce).

Keeping Track of Expenses

The second important task for your accounting system is to keep track of expenses in your business.

In its simplest format, this can be a worksheet in Excel or Google Sheets. When you spend money on your business, put it in the sheet and save the receipt in email or a cloud storage service.

Once your accounting starts to get more complex, you’ll want to upgrade to some proper accounting software. There are many options to explore here and not just one right answer.

If you’re using an accountant or tax service, check with them before making any commitments to make sure whatever you pick works for them.

You’ll also want to think about longer-term integrations with other technology in your business. For example, if you’re collecting payments through a website, you might want to consider an app that can automatically create entries from website orders.

If you’ve got multiple employees spending money in your business, you might consider an additional tool to capture and manage employee expenses.

Managing Tax Information

Last, you’ll want to consider what you need for tax purposes. This will vary based on where you live. It will also vary based on how you do your taxes.

Many accounting applications come with the ability to export information out to be used for tax work.

Things That Will Require A More Robust Accounting System

There are some specific things you will do in your business that will create the need for a more complicated accounting system.

First I’ll say that making more money in and of itself isn’t going to require improvements to your accounting systems.

I’ll also add that I’m in no way trying to discourage any of these activities because of accounting system implications.

In short,, anything that will add new types of accounting related information to your business should get you to evaluate and adjust (if needed) your accounting systems.

Here are some specific examples –

  • Adding employees (adds new types of expenses including payroll and taxes)
  • Adding new products
  • Adding new business models (e.g. one time payments vs. subscriptions)
  • Selling into new territories
  • Anything that changes tax implications

These are some examples and not an exhaustive list.

If you have questions or comments on anything accounting related, don’t hesitate to reach out!

Brian

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