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- Choose a bookkeeping system
- Set it up properly using a chart of accounts
One of the main reasons businesses fail is because there isn't a good bookkeeping system in place that would provide warning signs the business could run out of cash.
You can choose to set up a bookkeeping system manually (using accounting books), electronically (spreadsheets) or use accounting software. Unless you want to get familiar with bookkeeping practices, accounting software is the most efficient choice.
What to consider
Every business will have different requirements from an accounting software. When choosing an accounting software consider the following:
- does the system calculate all payroll requirements (PAYE, annual leave, long service leave etc.)?
- does the system track stock, work in progress, orders, jobs and other task management requirements?
- will the system be able to handle multiple bank accounts
- does the system need to handle foreign currency?
- does the system track separate financial records for each business or department within the business?
- does the system allow for interface with other computer systems such as online payments?
- does the system keep detailed records on customers including what they buy, how often they buy and when they buy (often referred to as a Customer Relationship Manager system)?
There are many software packages on the market that allow business managers to successfully control records without an accounting degree. Some of them, such as Free Accounting Software, have no cost. Some commonly used accounting systems used by small businesses are:
If you're unsure which to choose talk to your accountant or business adviser. It's worth checking to make sure the package has Standard Business Reporting forms needed to report to the ATO such as BAS statements.
It's also a good idea to ask other business owners what they use. If you don't know any, the Business Victoria Facebook group is always happy to answer your questions.
Setting up a bookkeeping system
When you set up your financial records you need to make sure they meet any compliance requirements such as GST or other tax compliance.
This is done through setting up classifications, also known as a chart of accounts. A chart of accounts is a listing of all the accounts needed to cover the financial transactions of the business. Classifications are used to separate profit and loss calculations to show where a business is making or losing money. It is also used to determine the overall financial position of a business in a balance sheet.
How to set up a chart of accounts
When setting up a chart of accounts you will need to:
- define the various accounts to be used in the business, such as different classes of assets, liabilities, expenses and sales revenue
- make a list of all of these under the financial classifications as noted above – that is, each different type of account for assets, liabilities, sales revenue and expenses
- it can be useful to allocate a numbering system for each account within the chart of accounts, such as all asset accounts will have been classified under the 1000 number and all liability accounts will be classified under the 2000 number
- allocate various sub accounts under these main accounts
- depending on the level of information you need, determine if each sub account needs sub accounts.
The chart of accounts is very important to the overall effectiveness and accuracy of your bookkeeping, so if you don't feel you understand it enough, then you should discuss with your bookkeeper or accountant before you set up your bookkeeping records.
Your bookkeeper or accountant can help you set up a meaningful chart of accounts if you don’t think you can do this yourself.
Accounting packages have predefined chart of accounts which you can allocate to your own financial transactions.
Case Study: Finding the right accounting software for your business
'Having really good information means your business can react the way you want it to, rather than how you hoped it would.'Carolyn Creswell, Carman's Fine Foods
Read more about Finding the right accounting software for your business