Those looking to start a new business should know that the accounting aspect of any business is the most important. Many want to focus on the areas of business that are the most glamorous such as designing the business card or the company name, but none of that matters if you don’t have a basic understanding of the numbers.
There are two generally accepted methods of accounting. These are cash accounting and accrual accounting. Cash accounting is the time when accounting events are recorded when they become tangible. Simply put, it’s the time when you have provided your service or shipped your product and your customer’s payment has been received. Cash accounting measures income when the money arrives and accounts for expenses when the money goes out the door.
Accrual accounting is an accounting method that measures accounting events in real time. If a customer agrees to your services and signs a contract or a purchase order, an accrual system of accounting registers that even as a sale, even if payment of that sale doesn’t reach you for weeks or even months. The same is true for when your business agrees to pay for a product or service. An accrual system recognizes that commitment as an expense at the time of agreement, even if you don’t make an actual payment on the good or service until a later date. Accrual accounting is a more complex way to keep track of income and expenses, but it does provide a more accurate assessment of your business’ condition.
Hiring an Accounting Professional
Making the commitment early on to hire an accounting professional is a wise investment. A professional accountant can navigate the financial waters with a trained prospective. They can help anticipate certain expenses, especially at the end of the year, while helping you avoid costly financial mistakes.
If you are thinking about a startup business, you could simply hire a bookkeeper which isn’t a bad decision early on. But as your business grows, you may need to hire additional employees, purchase new equipment or services or even want to start offering retirement plans for your employees. These types of decisions will need the attention of a trained accounting professional.
If you are a startup business, don’t take your approach to accounting lightly. Keeping your books accurate and having a good understanding of all of your financial matters is important. A professional accountant will be able to help you understand the basic principles of accounting for a startup business.