Sometimes a small business takes off so quickly one can find yourself floundering to keep up with your own success! While this may seem an ideal scenario rather than something to complain about, if you don’t quickly gain control of your accounting systems, you could find yourself struggling with adequate financial control. The best way to prepare yourself for all eventualities is by setting up an effective accounting system for your new company or other trading entity correctly from “Day One”. Here we review how to set up an accounting system for a new trading entity in order to correctly understand your performance, keep control and meet your reporting and taxation compliance obligations.

Things to Consider When Choosing An Accounting System

Businesses, large and small, use accounting systems to record and track their financial position. While all trading entities need a bookkeeping function, each industry and type of business has its own needs. The most important considerations include:

• Do you want to use software, do it yourself or hire a bookkeeper?
• Should you use outsourcing?
• Do you have inventory to manage, including materials for product production?
• Do you need project management tracking tools to address payment obligations for project progression milestones?
• How do you accept payment?
• What are your payment terms?
• What do you do to ensure retention of title for goods sold, but not paid for?
• How will you reconcile GST?
• Do you have a payroll?  Are you aware of the reporting obligations?
• Will you have PAYG withholding obligations? How is your cashflow budgeting organised to provide liquidity?
• What are your Superannuation Guarantee Obligations?
• Will your staff be bonafide independent contractors, or will they be deemed employees?
• Do you need to worry about foreign exchange rates?
• Will you be required to consider different tax jurisdictions?
• Do you know how to set targets for financial performance?
• Do you know how to review financial reports and statements?
• How will you measure performance against budget?
• Do you understand cash flow forecasting?
• How will you set sales targets?
• Do you need to pay out commissions or some form of incentives?
• Do you have any repayment schedules that could benefit from renegotiating?
• How will you collect unpaid invoices?
• How effective are your supplier contracts, terms, rates, etc.?
• Who will be authorised to spend money on your company’s behalf?
• Who will have access to your bank accounts and credit cards?
• How will you improve spending to reduce costs?

These are some of the important things to consider when setting up your management and financial information systems. It’s also one of the reasons many new businesses opt to engage a specialist small business advisory chartered accountant in Adelaide.

Understanding Your Software Options

Finding a correct “fit” with your business accounting software can make things a lot easier for your business. Some of the most popular software options available for accounting include:

Intuit QuickBooks

This is a popular choice because of its longevity. It is an adaptable software that can work with any industry or company size. They offer a 30-day free trial, as well as some of the fairest prices you’ll find. Regardless of the package you choose, you get a 30% discount for your first three months and your choice of the features you need.

Xero 

This New Zealand company provides an exceptional cloud-based system. You choose the subscription that suits your needs based on your industry. Owner operated businesses see excellent savings and the system addresses a long list of accounting needs from invoicing to payroll and inventory.

MYOB

MYOB helps you manage your finances effortlessly. Their partnerships with other software companies allow you to pick and choose the features you need, from payroll to invoicing and budgeting to running reports. You pay a monthly subscription fee and can leverage discounts of up to 50% for first-time customers. 

Reckon

This company used to be part of the QuickBooks brand but now offers its own software accounting tools. They offer affordable basic software and you can then choose the features you need.

Setting Up a Chart of Accounts

A chart of accounts lists your business’s income and expense classifications, assets, liabilities and allows you to design reporting relevant to your own management needs.  It is important to keep your accounting organised and relevant for your purposes, particularly in order to help you produce timely and accurate financial reports. When you establish a chart of accounts from day one, we can help you design business snapshots on a regular basis for key information.  Additionally, it is possible to keep real-time control of tax provisioning such as:

• Company and Personal Income Tax
• GST
• Pay As You Go Withholding 
• Superannuation 
• Fringe Benefits Tax
• Land Tax

At Clarke & Brownrigg, we have fully qualified in-house software trainers to help design your optimal solutions.

The Purpose of Reporting

Financial reports provide insight into your financial health. With the assistance of your accountant, you can decide which reports work best for your needs. Are they just a convenience to stay organised for tax time, or do you want focused reports including key performance indicators to inform business decision making? Generally, most companies focus on three areas of financial reports: 

1. Profit and Loss Statement to track income and spending and calculate net profit, examine gross margins and establish break-even points.
2. Balance Sheets to show your assets and liabilities such as accounts payable, accounts receivable, cash, inventory and any debts. Further examination will reveal an assessment of current working capital and adequacy of liquidity.
3. Statement of Cash Flows to help you track money as it comes in and out of your company.

With real-time tracking, you always know where you stand financially. You can:

• See opportunities to seek credit support for further growth.
• Avoid using external credit when you are falling into negative cash flow periods 
• Judge your financial strengths and weaknesses.
• Make informed decisions on the identification of your most profitable areas and declining profitability trends.
• Spot trends and identify your busy and slow times, managing liquidity.
• Prepare to meet customer needs with accurate forecasting.
• Avoid spending unnecessarily.

By working with your accountant to design financial reporting, you are always assessing financial and management performance in a timely manner.  Our highly successful clients have us assist them with monthly or quarterly financial reviews.

Outsourcing Financial Management

Outsourcing strategic financial management to a business-focused Chartered Accountant in Adelaide can prove a critical step in underwriting your business success, in the event that you:

• Don’t have time to keep up with accounting demands. 
• Are not yet at the scale to justify a full time internal accountant. 
• Could benefit from some independent, disciplined external review. 
• Need to get a grasp on cash flow improvement.
• Are not getting sufficiently proactive advice from your existing tax accountant, or paying  more than you would like, or feel you don’t have a great collaborative relationship.
• Seem to be paying way too much in taxes and constantly surprised by tax demands which seem to “come out of the blue”.
• Have financial reporting produced far too late to be of any use for banking or management decision-making requirements.
• Are worried about adverse tax exposure in the event of a tax audit. 

If you can achieve a solid accounting, tax management and financial reporting system from early in our engagement, you will comfortably know where you stand.

If you are interested in updating to an effective accounting and tax management system, book a complimentary discovery meeting with us today.

Related Service: Tax Planning & Advice