Concepts for Accounting Systems for Small Businesses
- A good accounting system will easily provide managerial reports to assist with business decisions and banking requirements, as well as facilitate income tax compliance and planning.
- The objective of an accounting system is to efficiently “capture” business revenues, expenditures and owner compensation.
- Many small businesses have success using QuickBooks (“QB”). It is fairly simple to write checks, set up charts of accounts, and balance the check book with QB. There are also other good programs available, especially industry specific accounting software.
- Use a third-party vendor to process payroll. Paychex is an excellent place to start. Payroll is not complicated, but processing it requires numerous small steps making in-house payroll preparation inefficient for a small business.
- Using a reputable large payroll service can also protect the business owner. Federal and State payroll deposits are fertile ground for employee embezzlement. It can take months, sometimes years, before management is aware of an employee stealing the in-house payroll deposits. The consequences are devastating.
- A small business should have a credit card account. American Express is a good business credit card. Its only draw-back is that not all vendors accept American Express. In any event, owners should not charge business expenses on a personal credit card or vice versa. Prudent business owners should have separate business and personal credit cards.
- Do not pay business expenses from a personal checking account. Instead, transfer funds from the personal account to the business account, thereby having the business pay the expense. There can be tax consequences for such transfers. Be aware of them.
- Similarly, do not pay personal expenses from the business checking account. Instead, transfer funds from the business account to the personal account. There are usually tax consequences for drawing money for personal use from a business. Thus, it is important to understand the taxes on draws, dividends, salaries, loans, loan repayments, etc.
- Once a month the checking account should be reconciled and the appropriate business reports generated. The monthly minimum reports are the income statement and the balance sheet. Typically, business owners also want to be aware of the accounts receivables and payables. Make it a goal to have all reports completed by the 15th of the following month. Many circumstances dictate more timely reports.
- If a business does not desire, or have the time or expertise to generate monthly accounting reports, it most certainly should have those completed by a third-party to facilitate #1 above.
If you would like assistance with your monthly and/or quarterly accountings, please contact us for a consultation to evaluate your specific situation.