Getting Your House in Order: Accounting, Insurance and Record Keeping for Your New Business

As most successful business owners will tell you, having the proper systems and processes in place is crucial for a business to run smoothly and efficiently.

Areas like accounting and bookkeeping, or tax preparation and payment automation, may not be as "fun" as brainstorming logos or new marketing ideas, but they're just as important to your long-term success.

Here are some pointers to help you establish your startup's administrative and operational structure.

Bookkeeping, Accounting & Taxes: Do it Yourself or Hire Experts?

Solid accounting, bookkeeping and financial record-keeping systems will help you meet regulatory requirements for your business, such as paying your business taxes. You basically have three choices when managing your finances — do it yourself, hire an employee to do it or outsource it. All three come with pros and cons.

Doing it yourself saves you from having to pay someone to do it for you. But if it takes away from your ability to do the things that grow your business, it can cost you money in the long run. Paying someone else cuts into your profits, but it frees you up to focus on higher-leverage activities.

You'll face similar trade-offs when it comes to preparing your taxes. Consider the pros and cons of hiring professionals versus doing these tasks yourself. Which choice best serves the vision you have for your business?

Do You Need an Accountant, a Bookkeeper or Accounting Software?

Bookkeepers

Although some may use the terms “bookkeeper” and “accountant” interchangeably, the reality is they perform two different functions. A bookkeeper keeps track of day-to-day transactions in your business and assists with billing and payment processing. Today, modern accounting software can automate many of these tasks (more on this in a moment), but bookkeepers provide an extra level of protection and human understanding.

Accountants

An accountant is different. An accountant typically performs complex or high-value projects, like preparing quarterly financial reports or planning for growth. They can help you make sense of the numbers in your business and provide insight into what they mean from a higher level. They can also file your taxes and help you maintain accurate financial records.

If you must choose between hiring a bookkeeper or hiring an accountant, the accountant will almost always offer higher value—likely at a higher cost.

Accounting Software

Finally, there's accounting software. As mentioned above, most modern software packages can handle day-to-day financial tasks such as preparing invoices, paying bills, or creating purchase orders. They can also automate reports—but you may still need help interpreting them.

When evaluating software, make a list of "must-have" features as well as “nice-to-have” features and weigh your options against that list.

Also, investigate industry-specific software. There are accounting packages for restaurants, hotels, medical billing, nonprofits and many more. Using industry-specific software is often easier than trying to make your business fit into a one-size-fits-all generic package.

Be sure your solution is flexible. Are the different packages scalable? Can you add features or users as your business grows? You don't want to be stuck with accounting software that can't grow with you.

Business Insurance, Risk Management and Secure Record Keeping

Next on the list of "necessary-but-not-necessarily-fun" activities are things like choosing appropriate insurance plans and sorting through options for business- and client-record security.

The type(s) of insurance your business will need is highly dependent on factors like your industry, your business structure, your location and whether you have employees.

However, several types of insurance are common, including general liability insurance, commercial property insurance and business interruption insurance, which would cover you in the event your business had to shut down for an extended period (your store floods and is unusable for two months, for example). Your mentor can help you sort through these options.

When it comes to record-keeping considerations, it’s imperative that both your internal information and your customers’ personal and financial information are safeguarded. Not doing so can expose you to significant liability if, for example, your system is breached and customers' credit card numbers are exposed. Work with your mentor to select data storage and backup plans that meet or exceed your industry's guidelines for data protection.

Have more questions? Reach out to SCORE for free, expert mentoring and resources to guide you through your small business journey. Visit score.org to learn more.