Many small business owners wonder if an accounting system is necessary. Most find the language of credits and debits confusing, but an efficient accounting system contributes communication of profitability to the managers of an enterprise. Just as statistics of a website gives you the return on investment, an efficient accounting system does the same for you on an overall picture of multiple streams of income. Your streams of income are all processes of intellectual organizations combined to earn you money. And you want to account for these large sums going into your bank account without our government entities thinking those sums could be tied to terrorist activities, and everything you own seized.
An accounting system is for communicating the financial health of an organization. And therefore a simple system is needed to help you run your business. The general ledger shows the transactions in four different categories. These account categories are assets, liabilities, income and expenses.
Most automated accounting software is designed to run on most computers, but you need to know enough, or someone in your organization, to be able to input the information.
An automated system does more than produce financial statements for you. You use the system to pay your bills, keep track of money in your checking accounts, pay affiliate commissions, buy software, pay for services and post all of these transactions for you to show your financial health.
Another part of business that most home businesses never think about is the proper compliance with the government laws that are in effect. When you get to the point of being able to “outsource” some of your work to get things automated for giving you the time for your family, your ‘chilling’ time or business time, you need to get proper information for your files. This information is mandatory when you end up paying more than $600 per year for these services. Just writing a check won’t survive the audit. You need a signed and filled out W9 to support your 1099 statements at end of year.
Also as a home business, your business, may need an EIN (employer’s identification number) and you need to file an SS4 form with IRS to get that EIN number. All this needs to be done before you need to file any report. Plan ahead and get this into your business plan.