Accounting in your company

Economic performance is what we pursue when starting a business. It does not matter if it is a one-person enterprise, a company or a multinational, to obtain profits is the main objective to be able to maintain and prosper. To fulfill this purpose it is essential to know about finances and to have a clear understanding of the basics of accounting in order to be able to interpret the numbers. This will allow you to know exactly how much you have obtained, if the business has grown or, on the contrary, if you are at risk of failure.

Managing finances and accounting can be overwhelming. Managing money and taxes can be stressful, not to mention that many times you just don't want to do the bookkeeping. This activity is essential to running a business, no matter what level it is, and it needs to be done properly. Turning numbers into actions makes you a business person.

As a new entrepreneur you cannot rely on your bank statements alone to manage your business. These reports only show the movement of cash, it does not give us information about money owed, taxes due, or possible trends.

Often when starting a business we do not take the time to learn the basics of accounting and how they apply to our business. Once you start growing it will be harder to catch up and it will become a weakness that you will carry with you.

You may not have the budget to hire an accountant in the beginning, and even if you can, it's best to soak up the subject matter. You will have to put in the time and effort at first but it is worth it. Practice is better than any theory and it will be much easier to develop your skills in the beginning with few clients and operations.

What is accounting?

Accounting is the complete and systematic process of recording, managing, controlling, analyzing and interpreting all economic and business operations and transactions that take place in an entity.

Main steps of the process:

• Information is collected in chronological order.

• It is recorded according to the rules and procedures of the country.

• Financial statements are issued.

• The information is analyzed and interpreted.

• Decisions are made.

The accountants or bookkeepers are responsible for monitoring all income and expenses, ensuring compliance with financial obligations and assisting in decision-making. They offer solutions and ideas for improvement, taking into account internal and external factors that may affect the business.

Each country has its own particularities in terms of reporting and accounting standards. When creating the accounting system, it is necessary to adapt it to meet the requirements established by the accounting regulations in force in your region. The accounting year is generally framed in 12 months coinciding with the calendar year.

What is accounting for?

Accounting is the perfect tool to visualize the financial reality of a business. Among other things, it allows us to

• To know if the business is profitable and to maintain continuous and updated financial control, both of profits (how much we have and how we got it) and losses (what we spent and how much).

• Prepare all the accounts and know the assets and liabilities.

• Comply with all our obligations and taxes on time.

• Better manage cash flow and the resources we have.

• Set an adequate price based on your costs.

• Analyze past events, evaluate the present and plan for the future.

Accounting methods

An accounting method is a formal process where accounting is tracked from the time the information is collected until the financial statements are issued. This information is relevant to all stakeholders so the method must be sound.

All financial actions must be recorded and well documented. You should choose the recording method that makes sense for the accounting reality of your business and your country's regulations (which sometimes require one method or another).

There are two fundamental ways or methods in terms of the basis of accounting:

• On a cash (or perceived) basis: Income is recorded exactly when the cash/check is received, not when you made the sale. Expenses are recorded when they are paid, not necessarily when you acquire the good or service. You record the money on the day it enters and leaves your account regardless of any arrangement between the parties.
• On an accrual basis: You record revenue when it is earned, when you make an agreement with the customer and the sale is made. Expenses when you make a purchase. It does not matter if for example the money will be collected in 1 to 2 months or if you received or delivered an advance. The recording date is when the sale or purchase is made and not necessarily when you receive or spend the cash.

The cash basis method is simple and straightforward, but it does not portray the cash reality of most businesses. Transactions on a credit basis are normal and everyday, but this method does not record accounts payable and receivable. Nor is it suitable for tracking inventories, paying staff or recording depreciation or amortization. Only smaller businesses that do not manage merchandise would find this method useful in the long run.

You need to choose which method is most suitable for your expected profitability. The one that allows you to determine taxes and track transactions. It will be your way of interpreting the business world. If you have doubts it is a good idea to consult a specialist to confirm which is the best option according to your type of business and the regulations in force.

Accounting system

After choosing a method, it is necessary to decide on the system we are going to use to record the operations of the different activities quickly and efficiently. The information presented must be organized, legible, useful and verifiable. Any medium will do, manual or digital, as long as it enhances the value of the financial information.

You can outsource accounting, but this is an expensive option. You will probably have to start running your system and that is why it is important to prepare yoursel