How To Create An Accounting Department For A New Business
Accounting and finance are two of the most important department for a new business. Your accounting and financial habits will not only help you strategically plan the future of your business, but will also dictate your profitability, and ensure your compliance with tax laws and financial regulations. Without a strong accounting department in place, even a brilliant business concept can crumble.
The question is, how can you create a fully functional accounting department for a new business, entirely from scratch?
Three Areas Of Consideration
It’s most useful to think of your accounting and finance function in terms of three categories:
- Processes. Procedures are going to define how your records are kept and how individual responsibilities are assigned and handled. Good processes tend to be automated and/or well-defined. Automated processes, compared to manual human entry, are much less prone to error and are cheaper to run in the long term. Well-defined processes, with complete documentation, are highly scalable, and more consistent.
- Technology. You’ll also need to think about the technology you’re using. While it’s technically possible to keep your business’s financial records on a simple spreadsheet (especially in the early days), you’ll need a more sophisticated platform if you want to scale—and better platforms have the capacity to reduce human error.
- People. Of course, even the best software in the world can run your finance department single-handedly. You’ll need to invest in the right people if you want your department to work. Usually, this is best considered in a top-down way; start your department with a talented, experienced leader, and fill in the gaps as you work your way to more entry-level employees.
Starting From Scratch
If you’re starting an accounting department from scratch, these should be some of your highest priorities:
- Be ready to separate personal and business finances. While it may seem like an obvious tip, many startup entrepreneurs end up mixing their personal and business finances. For example, they may use a personal bank account interchangeably with a business bank account, or may inefficiently track their expenses due to confusion between the two. Start this process with a mentality that these are entirely separate entities.
- Establish the basic system. When you’re just starting a business, you don’t need to create a robust accounting system that will serve your business’s needs throughout its entire growth. Instead, you can start with something simple and work on expanding it. To start, all you’ll need is a simple, accrual-based accounting structure to track your income and expenses. You can find a software platform that offers the basics, or work with a basic spreadsheet until you’re ready to upgrade (just don’t wait too long if this is the case).
- Open your accounts and lines of credit. Next, you’ll want to start opening accounts for your business that you can draw on consistently. Depending on the nature of your business and your current access to capital, you may also want to open a business line of credit, which you can tap into if you’re ever short on cash.
- Talk to a tax professional. Taxes can crush a small business if they’re unprepared. It’s your responsibility as a business owner to become familiar with tax rules and regulations as they affect your business, but there’s a lot to learn for a newcomer—and a lot to misunderstand. Accordingly, it’s in your best interest to talk to a tax professional as early as possible. Some financial experts are jacks-of-all-trades, with knowledge in finance, accounting, bookkeeping, and tax preparation, but others specialize; make sure you know who you’re talking to when you’re getting advice.
- Gradually improve. As your business starts to get momentum, and your revenue and expenses become more complex to track, it’s important that your policies, procedures, staffing, and software platforms evolve. This can be a difficult process to manage, since you don’t want to change too much, too quickly, but if you never evolve, eventually, your accounting practices are going to become burdensome and inefficient. Focus on identifying the biggest inconsistencies in your work first, and make sure you document your changes along the way.
With a better accounting system in place, your business is going to be much healthier; you’ll have more consistent cash flow, you’ll be more aware of the biggest financial strengths and weaknesses of your organization, and you’ll be completely on top of your tax obligations. It’s not easy to get an accounting function established when starting a new business, especially if you plan on growing that business to scale, but with solid processes, people, and technology to power your organization, you can get to a good spot. Make finance one of your top priorities as a new entrepreneur.