Setting Up An Accounting System For Your Small Business
Did you know that The New York Times rates poor accounting as the fourth reason, on a scale of ten, why small business fail?
“You cannot be in control of a business if you don’t know what is going on. With bad numbers, or no numbers, a company is flying blind.”
In a bid to correct this, I recently held a seminar online enlightening small business owners on the need for accounting and how to set up a system to track their numbers.
WHAT IS ACCOUNTING?
For many we understand it as keeping financial records. Lots of intimidating numbers. Understanding debits and credits.
But at its core, accounting is simply deciding what amounts of money are/were/will be involved in transactions, often buying and selling, and then organizing the information and presenting it in a way that’s useful for decision-making. It is not a branch or mathematics at all, but it does involve some additions and subtractions to arrive at reasonable financial conclusion.
Accounting began because people needed to:
- Record business transactions
- Know if they’re being financially successful
- Know how much they owned and how much they owed.
And you will soon see that much of what we'll discuss here solves these problems.
Bookkeeping is recording data relating to accounting transactions in the accounting books.
Why do we need accounting information? Depending on what kind of user you are, you’ll have different needs:
Managers need it to know how well things are progressing financially.
Owners need it to judge profitability and see the business's financial resources.
Prospective buyers need it for due diligence.
Banks need to know whether or not to lend you money.
Government needs it to ascertain how much tax you need to pay.
Prospective partners need to determine ownership structure.
Investors need to know if your business is a decent cash cow.
Suppliers need to know you can pay up when due.
Employees want to know that your going concern is not threatened and you're able to pay salaries.
As you can see, there are so many stakeholders, but you as owners and managers are the most important. So much of what you’ll need to grow your business will affect the other stakeholders. This is why you need to maintain financial records and start doing this immediately.
WHAT YOU NEED TO SET UP
- Register your business with the CAC. Business names can be done in 24hrs if you have the necessary documentation.
- Register with the tax authority and obtain your Tin.
- Open a bank account for your business.
I need to stress why registering is important. It makes you legitimate and it’s easier for customers and investors to transact with you.
DO NOT ever run your business with your personal account. You will mess things up and misuse your money. It’s important that you separate what’s yours from what belongs to the business. Doesn’t matter if you’re a sole proprietor or Limited Liability Company, open another account and dedicate it solely for business purposes.
4. Choose an accounting package. There are so many softwares online that makes bookkeeping so easy. If you can afford the cost then get one. You’ll use it for a very long time. If you can’t, a simple excel spreadsheet will help you. If you can’t do either, buy a ledger book—they’re sold in the market. Just make sure you are keeping records every day.
Accounting softwares you should consider are QuickBooks online (for small business), Wave, Sage50cloud, ZohoBooks, Xero, FreshBooks, ZipBooks. A quick Google search will link you to their Web page.
Sample before settling on any. Some are free with a few paid features. Others are not. The website will provide more information. Also check that the services provided fit the kind of business you run.
