Every business needs an accounting system. The type of system depends on the sector and the size of your business. As a starting point, your main concern should be that your accounting records and filing system are adequate to support the income and expenses that you show on your income tax returns.
Intelligent Business Decisions: You can start your business with a very simple record system. Aside from filing your income tax return, your bookkeeping system and the resulting reports it generates should provide you with enough useful information to allow you to make intelligent business decisions. As your business grows, your system should be changed to provide new and improved reports. If your system is too cumbersome for easy use, the chances are you will not keep timely records and will lose out on good management information.
Example: Let’s suppose you have a restaurant. It would serve no purpose to have a profit and loss statement with so much detail that you can tell the cost of “pepper”. It might be more adequate to group all “spices” into one account. It could also be included as part of “food costs.” On the other hand, the cost of “coffee” should not be lumped into “food costs” since it will be a major
item with a separate price on the menu. Keeping track of your food categories is extremely useful when negotiating prices with vendors.
Profitable Business Decisions: If your current accounting system is not giving you reports that assist you in making profitable business decisions, you will need to make some changes. Once you know what reports you need on a regular basis, the accounting system can be designed to produce those reports with the least amount of effort.
It’s worth the effort to research the best accounting software system for your business. Talk to your accounting and tax advisor or your bookkeeper for advice.