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Bookkeeping for New Businesses

Updated on November 8, 2012

Bookkeeping for small business

Starting up a new business can be an expensive exercise and the natural instinct is to avoid unnecessary expenses. I have previously written an article on my blog that deals with the substantial costs involved to ensure that all your business contracts and agreements are in place, properly drafted by a lawyer, when starting a business, and bookkeeping for small business is another area not to cut corners.

Having discussed the matter with many entrepreneurs, the tendency is to think that the costs of having basic agreements drafted, such a Standard Terms and Conditions of Sale, should be put off until the business has excess cash flow available. Discuss the matter further and it will become apparent how many of these entrepreneurs have experienced some sort of legal wrangle before this magical moment of having excess cash arrived. The inevitable result is that, had the proper agreements been in place, all parties would have greater clarity on where they stand and any ensuing litigation (and associated costs) would be curtailed by this clarity.

The same reluctant approach to initial administrative start-up expenses can also be found towards purchasing accounting software. This article is not meant to favour any particular brand of accounting software as there are many excellent packages available on the market. It is, however, meant to encourage you to adopt one of the available packages on the market. They are easy to purchase online and there are even certain free packages available - here, for example, is one applicable to South Africa, but you can easily find others on the web.

Briefly, on the subject of free accounting packages: while they are certainly to be recommended over having NO accounting system in place, they generally do have certain limitations in terms of customization and availability of updates on tax rates. Without detracting from those free products available, we recommend that you squeeze an extra $50-$150 (from R1000 in South Africa) into your budget and purchase a package. Remember, these products have been developed at great cost after research and development - they are successful for a reason and are often easier to use for the novice.

There is a great deal of value in proper cash flow management and future hubs will expand on this subject. At this stage, suffice it to state the obvious that without cash, you can do nothing with your business. Your business might have a very impressive balance sheet with loads of debtors (people owing you money) adding to the assets, but ultimately, a new business cannot buy anything based on its balance sheet. Banks are risk averse and do not want to lend money to a new business based on debts owed to it because debt is not always recoverable.

In order to properly manage your business' cash flow, it is essential that you collect money due to it on time. In addition to collecting money, you need to plan how to spend that money - and not spend money that you do not have! The basic bookkeeping and accounting software packages will all help with this - you can see at a glance what you owe to whom and how much is owed to you.


Software accounting packages

The entry-level accounting packages also use simple terminology for the novice. Although managing your business' record keeping on a software package might seem a daunting prospect to new business owners, they are simple to understand and use. After a few weeks of use, you will feel quite comfortable with the software and will not return to keeping records on scraps of paper. By way of example, Intuit's Quickbooks refers to sales, expenses, customers and vendors (referred to as suppliers in South Africa's Pastel).

You will also be able to generate professional-looking documents, including invoices and statements. This always gives any young business an advantage over its competitors - it is a natural instinct that your customers will feel that you give them a professional service if your company documentation looks the part. Equally, you will do yourself no favours if invoices are delivered on the back of roadhouse napkins!

Once you have got the hang of it, you can upgrade your software to expand its functionality and undertake certain tax and legislative compliance. The software can calculate the tax payable by your staff and the business, complete documentation submittable to the Revenue authorities and generate invoices and other company documentation that complies with local law. In Australia, a popular choice is MYOB and in the United States, see Avanquest's award winning Bookkeeper.

We highly recommend that you make use of one of the excellent accounting tools available from the start of your business. If you get into the correct accounting habits from the inception of your new venture, your chances of success will only increase. It is a small investment, in the broader context of the start-up costs of a business, that you will not regret.


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