Small Business Startup
Setting up an Accounting System

(Date posted: February 25, 2009)

During this step in your small business startup, you will set up a computerized or hand-written accounting system. You will also design reports to monitor and control your operating results.

Before starting this step, you should have set up the home office. The previous step shows you how to do this.

The desired result of this step is an accounting system that can be used to produce financial statements and other reports you will need to monitor and control your business.

You will use the following topics to complete this step:

Go or no-go decision

You will use the financial statements and other reports from this accounting system in future steps to help make decisions and correct problems.


Before using this information to start a business be sure to read the following notice: Disclaimer


Don't let details obscure the big picture

Once you start business operations there is a tendency to become occupied with routine details. Now is the time to set up an accounting system that will let you see the big picture. Then you will be able to monitor and control your business operations. (If you can't control your business, it will surely control you.)

You may need to set up measurable objectives for the business and verify that you meet these goals. Then you can monitor these objectives on whatever periodic basis is appropriate. You can design reports to measure whatever factors are important to you.

Typical reports might be:

  • Daily cash flow and cash balance report
  • Weekly list of new customers
  • Monthly financial statements
  • Monthly sales growth report
  • Quarterly survey of customer satisfaction
  • Yearly review of business goals

Deciding what is important

As you can see from the above suggested reports, various factors can be used to monitor business operations. So the question might be, which factors are the most important? What are the one or two things that should attract your attention? The answer -- daily cash flow and cash position are the most important. You will also notice that these two factors appear on a daily report. Cash is king! That is all there is to it.

No matter how bad everything else may be, if your cash keeps growing you probably will be okay. On the other hand, if everything else looks rosy, but cash keeps declining you probably will run into trouble.

However, it is up to you to decide what factors are important in running your business.

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NOTE: If you are developing a low-cost, low-risk type of business, review the Bootstrap Methods page in another section to save on cash.

Using outside help

If you will be using any outside professionals (such as an accountant or bookkeeper) to help with the financial aspects of business, now is the time to choose a firm. They can help you select and use your accounting and reporting system. They also can help design the reports and train you or your people to produce them. They can help you understand the financial statements and use them to run your business.

If you can't afford to pay for outside professionals at first, you will have to use some outside information sources. I recommend the two following books:

"Bookkeeping for Dummies"
"Accounting for Dummies"

These books can be purchased at or Barnes & Noble online bookstores.

Acquiring any needed facilities

If you will be using a computerized accounting and/or reporting system, purchase any needed equipment, programs, and supplies. If you will be using a hand-written system, purchase any needed forms, journals, and supplies.

Designing the reports

The guidelines topic above provides some suggestions for useful reports. You must decide what factors are important to you. Your accounting or other information system should capture and accumulate the relevant information. Then your reporting system can display the status of these important factors.

For example, if you want a daily cash flow and cash balance report, someone should record the cash receipts and cash disbursements transactions each day. This can be done on either a computerized accounting system or a hand-written cash journal. Then these transactions can be summarized and used to prepare the daily cash report.

Those reports that do not involve cash transactions would require other means to record the activity and/or status of whatever factors are being measured. For example, whenever a customer purchases your product someone could check your list of existing customers. If this is a new customer, it could be added to your Rolodex of existing customers and entered on your weekly list of new customers.

Testing the reports

You might want to prepare some dummy reports to see what kind of information they will show. Then you can see if this is the information you will need to monitor and control your business. Remember, the increase or decrease in cash usually is the most important factor in the success or failure of a small business.

Producing the reports

The accounting system you have installed is to be used in producing financial statements and other reports. Before beginning business operations, you or someone else should become qualified to produce these documents. (This someone else could be an outside bookkeeping or accounting firm.)

Controlling business operations

Now that you have these reports of meaningful factors that affect your business, you want to actually use them. You should review them frequently to see if you have any problems developing. If so, you want to solve those problems before they get out of hand.

For example, if your cash balance is decreasing, you should immediately stop all unnecessary cash disbursements. Then you should try to increase your sales.

Don't ignore problems. You might want to study the page on Solving Common Business Problems in another section.

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This example will use my own small business startup.

Using outside help

Since I am a retired accounting professional, I won't need any outside help in that area.

Acquiring any needed facilities

I have acquired all the facilities needed to run my business except for a computerized accounting system. I plan to purchase the QuickBooks Pro program when I start receiving income from my business operations.

Designing the reports

I will use three reports to monitor and control my business:

  1. Daily cash flow and cash balance report
  2. Monthly financial statements
  3. Yearly review of business goals

Testing the reports

Before I purchase the computer accounting program, I will verify that it can produce the first two reports above. The last report above will be based on the yearend financial statements. I will compare the results for the year to my goals for that year.

Producing the reports

Before I receive any sales, I will set up and produce the reports needed to manage my business. This will be an easy task for me. I have set up and operated many different hand-written and computerized accounting systems over my professional life.

Controlling business operations

I certainly intend to use my three reports to monitor and control my business operations.

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Go or no-go decision

This decision concerns the accounting system and reports you set up in this step.

Go on to the Completing the Startup Requirements step in your small business startup if you can answer "yes" to the following questions:

  • Have you set up a computerized or hand-written accounting system that can be used to produce financial statements and other reports?
  • Have you selected and designed the reports you will use to monitor and control your business operations?
  • Is someone qualified to produce the financial statements and other reports?

If you have answered "no" to any of the above questions, go to this topic on another page to see what to do next.

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