Until – or unless – a startup needs to invest heavily in a financial reporting infrastructure – the good news is startups can do an awful lot with very little. In the next section I will lay out some great techniques that will allow your staff to leverage online tools – and make your bookkeeper’s job much easier – at least for the first year or so of your company’s existence. I’m talking about good recordkeeping and efficient after-the-fact bookkeeping .
Ideally small businesses should engage a skilled bookkeeper – part-time – from the beginning. Problems generally arise when entrepreneurs believe that anyone with an introductory accounting course can use an online accounting package that will produce accurate financial statements at the “touch of a button”.
If you can’t afford a bookkeeper at the start, skilled bookkeepers working after the fact can use these same techniques to do the books very efficiently at year end – before you send the books to your accountant.
…but they can only do this if you have kept the right records…
In this guide I have tried to shift the focus from teaching entrepreneurs financial reporting and bookkeeping techniques (which is kind of like herding cats), to managing and leveraging existing online data effectively.
Of course you’ll have to ask your bookkeeper which records to keep.
Recordkeeping vs Bookkeeping
There is a real – albeit subtle – difference between recordkeeping and bookkeeping. The ‘books of account’ are an essential part of a company’s records. In fact people commonly refer to a company’s ‘books and records’. As a tax auditor, I frequently issued ‘books and records’ letters to taxpayers. This was done to put them on notice that, if they didn’t improve their record-keeping practices, penalties would be imposed in the future.
For a great many very small businesses, the company’s bookkeeper or public accountant maintains the books of account. Many – perhaps even most – small businesses wouldn’t know a general ledger if they tripped over it. In spite of this all corporations are required to maintain proper books of account – which includes a general ledger – along with journals and potentially subsidiary ledgers. With very few banking records and a significant amount of ingenuity, small public bookkeeping or accounting firms can piece together (referred to as ‘compiling’) a company’s ‘books of account’ and financial statements with a surprising degree of accuracy.
The books of account contain a record of the transactions that a company engaged in, since inception. However the books aren’t really the best kind of evidence – if this were a crime show on tv, we’d call the books ‘hearsay’ evidence. The books are where the bookkeeper records transactions – by referring to ‘supporting documents’.
Supporting documents are the records part of ‘books and records’. For a small business, record-keeping starts with – wait for it: …Keeping records (i.e. supporting documents)….
The good news is that in an online and digital world, record-keeping is actually getting easier. These days your suppliers do much of the work for you. However, if you don’t keep adequate records – and make them accessible – no one will be able to prepare your ‘books of account’ and if they try (because someone has to), it will cost you too much.