Business accounting management: what it is and how to do it right
To achieve success with a startup, having a winning idea is not enough; in fact, it is necessary to deploy a range of skills, including in particularly sensitive areas. Business accounting, in particular, is one of the aspects that, in this sense, most terrify entrepreneurs. You, however, do not let yourself be frightened because you will soon be clear about what to do and how to do it; first, however, you need to do a little thinking.
Too often we tend to believe that the management of accounting has as its only utility that of complying with the requirements of the regulations in force and not to fall into errors that could have serious repercussions in economic and legal terms; in reality, however, it is good for you to know that managing accounting in an accurate and timely manner allows you, above all, to have an updated and real vision of the economic-financial situation of your business and to adopt, as a result of this, the best business strategies.
Now that you are a little clearer about the importance of bookkeeping, it is time to understand how you can manage this process easily and effectively.
A first important distinction
Let us immediately clarify the definition of corporate accounting: it is that process which includes the set of activities of collecting and chronologically recording all the economic and financial events of a company. The purpose of this process is to prepare, during the year, a series of verification and control balances and, by the end of the relevant administrative period, the annual financial statements, which include the accounting documents and financial reports that a company must prepare by law in order to pursue the principle of truth and to ascertain in a clear, true and fair manner the financial position of the company.
A first important distinction in this area will help you decipher even better what is meant by bookkeeping management and what its implications are: in fact, a distinction should be made between ordinary accounting and simplified accounting.
Ordinary business accounting is the mandatory accounting regime for corporations (SRLs, SPAs, SAPAs, and Cooperative Societies) as well as for any type of enterprise that exceeds the following revenue limits: 500 thousand euros for enterprises having as their object the provision of services, and 800 thousand euros for enterprises having as their object other activities. It is more articulated, complex and costly, but it allows control over all components of the enterprise.
Simplified accounting, on the other hand, applies to those businesses that have revenues below the previously mentioned thresholds and, by virtue of this, have the option of providing facilitated documentation, in which only costs and revenues appear, within the VAT records.
What to look out for
When it comes to accounting management, there is often a tendency to be confusion about what needs to be tracked and, even more specifically, what needs to be included in documentation.
As already pointed out, business accounting management keeps track of all economic and financial events concerning the company. More specifically, then, one must record all income and expenses, with the corresponding ending balance.
When we say all, we mean (pay close attention) all: this means that there are no more or less important expenses and that, therefore, you will have to properly note any economic movement, even the smallest. It is important to reiterate this information because it happens not infrequently that some costs are overlooked, but you will benefit from knowing that one of the most recurrent cases concerns travel.
There is, then, another aspect that you need to monitor particularly carefully: another source of recurring error is related to cases of partial deductibility or even total nondeductibility: you need to consider in this regard that some expense items are not totally deductible, by explicit tax rule or may even be totally nondeductible.
When you proceed to bookkeeping, as we said, there are many situations to keep under control: in addition to keeping accounts and payments in order, you have to, among other things, forecast cash flow trends and monitor payments due, with particular attention to late payments. Accomplice also to the Covid-19 pandemic, which has brought several companies to their knees, late collections is precisely one of the major trends that startups and companies in general need to pay more attention to today.
How to keep accounts
Now that you are clearer about what to keep track of in managing your startup’s accounting, you need to know how to do it.
It should be made clear from the outset that there are many ways and times to keep accounts, and each company must find its own winning model according to its specific needs. That said, however, it is important for you to be familiar with some of the ways adopted by businesses.
A first action you can take to keep your startup’s books is to set up the chart of accounts properly, breaking down and segmenting the business activity according to various parameters (for example, by products or by sales channels). Each of these segments (which are called cost centers) incorporates its own specific costs and revenues (although some may be common to all and, therefore, should be broken down among the different segments). This subdivision makes it easier to define and analyze the performance of each area, its profitability over time, and any problems.
You should know that it is also important, as well as mandatory, that all data be properly recorded, that is, in precise chronological order and in the correct cost item. Another very important aspect is timing and consistency in updating your accounting.
A monthly cost control has the great advantage of giving you the opportunity to notice any accounting errors in time and to take timely action to correct them. Of course, such close periodicity also requires more organizational effort.
A possible alternative, therefore, is to check every 3 months (so 4 times a year) or every 6 months (2 times a year). Obviously, the more frequently the control takes place, the sooner errors can be corrected or operational decisions can be made. In the former case, it is advisable not to coincide these appointments with times of the year when your startup’s activity intensifies. The six-monthly check, on the other hand, has the disadvantage of making it more complicated to act on errors, which may accumulate over the months.
There is, then, another route you can take: it is continuous (or high-frequency) control, which allows you to take action on errors virtually in real time. This solution, however, is feasible only if you have automated software that can synchronize every movement.
The next few lines will be devoted precisely to clarifying to whom you should entrust the management of your startup’s accounting.
The choice regarding the periodicity of cost control also inevitably conditions the decision regarding who to entrust this control to.
Closer frequency is possible if the startup has a member in-house who has specific training in this field and who deals with this particular aspect. Otherwise, to ensure frequent and accurate cost control, an external accountant should be used.
This solution allows you to concentrate on the other management aspects of your business, with the security of having entrusted the accounting to a professional in the field. Inevitably, however, this comes at a cost. There is another aspect to consider: you need to make sure that, despite being external to the company, the tax consultant has full knowledge of all the company’s economic and financial events.
In recent years, management software has made it possible to automate, synchronize, and simplify the day-to-day administrative activities of companies, with multiple practical benefits that can be generally summarized as follows:
- the need for hand data entry is eliminated;
- the time associated with mailing, filing, and storing information is reduced;
- costs related to paper media and printing are cut down;
- risk of losing information and making mistakes is reduced;
- numerous control reports are obtained automatically;
- cash flow control can be done in real time and even remotely, at any time and from any device, because the data is stored securely within the cloud.
The market today offers several solutions that operate in the cloud. It is possible to mention a few of them: FattureInCloud is particularly suitable for those who need to manage constant accounting; Starty ERP, on the other hand, offers differentiated and flexible solutions and, in relation to the specific area of accounting operations, ensures a level of process automation equal to 95 percent; Giobby is a management software completely in Italian that allows basic accounting to be managed with ease; Passepartout and Profis, finally, are software designed to meet the needs of professional firms and tax and administrative consulting companies.
The benefits of good accounting management
If you have been paying attention to what has been said so far, the benefits of proper bookkeeping will be clear to you by now. In any case, it’s good to remind you of them once again: keeping your books in order allows you not only to avoid legal hassles, but also to maintain full management control of your startup, so that you can make more timely and effective decisions and can focus your efforts and resources on the most profitable activities, thereby maximizing business performance. There is a phrase, uttered by Richard Branson, that you would do well to remember in this regard:
“Never take your eyes off cash flow because it is the lifeblood of the business.”
The importance of keeping the archive in order
Did you think this was the end of it? There is one more thing to clarify: good bookkeeping is also and above all based on a well-managed archive.
You should know that accounting records, by law, must be retained for tax purposes for many years. Invoices, bank statements, and cost slips must be retained and made available for possible tax audits for as much as a decade beyond the reporting year.
Obviously, as already mentioned, relying on a paper archive, no matter how systemic and precise the organization of business records may be, exposes you to greater risks of losing documents; for this reason (and for the additional reasons mentioned above) you would do well to consider outsourcing the management of your accounting and, in particular, the filing of accounting documents to a management software, which can make this process faster, more reliable and more secure.