Setting Up Accounting, Bookkeeping, and Reporting Systems as a Small Business

Published by BradyRenner CPAs | July 26, 2023

Bookkeeper or CPA and business owner making reports, calculating and checking balance sheets.

There are many vital steps on a new small business owner’s to-do list. In the last article in this series, we walked through the process of choosing a business entity and tax structure. Once you have those foundational elements established, you’ll need to address the setup and management of your accounting, bookkeeping, and financial reporting systems and processes.

BradyRenner knows how important it is for your small business to begin with effective systems in place in order to track spending, maintain records for the IRS, and organize the financial information that will help you project your success and plan for your future. Here are some of the systems that your small business will need from its inception.

Accounting Systems for Your Small Business

In every small business, there are three main types of accounting systems: financial, managerial, and cost. Each of these has an essential role in the success of your business, and having the systems in place at the outset prevents you from missteps that could cost you profits – or in the worst case scenario, even your business itself.

Financial Accounting

This first accounting system tracks the daily, monthly, and yearly spending of your business. In order to generate accurate financial statements such as a balance sheet, income statement, and cash flow statement, your small business must have an established financial accounting system in place.

Without precise financial statements, owners and stakeholders may not be able to give accurate reports to their investors, evaluate their own needs for financial improvement, or file their income tax returns accurately, all which can lead to disastrous consequences.

Managerial Accounting

While financial accounting involves reporting information to the company and stakeholders alike, managerial accounting information is reserved for those within your organization. With this financial data, managers can make informed operating decisions for the business.

Cost Accounting

The expense involved in offering your product or service is tracked by cost accounting. Within cost accounting, you will need to monitor both fixed and variable expenses with the goal of discovering ways to reduce production costs and increase profits.

Financial statement analysis is vital to success

In order to properly assess the financial health of your business as well as adjust your business practices as you grow, you will need to have accurate financial statements resulting from your financial accounting systems. Balance sheets, profit and loss statements, and cash flow statements are the roadmaps to your financial stability and success.

Balance Sheets

Balance sheets contain documentation of a company’s assets, liabilities, and equity at a specific point in time. Along with other financial statements, a balance sheet helps paint a picture of a company’s financial health. The most important part of a balance sheet is that it is balanced, meaning that the company’s assets are equal to the sum total of its liabilities and equity.

Profit and Loss Statements

Another piece of information which sheds light on your business’ financial health is your profit and loss statement. This statement is required when your business is applying for a loan or other types of funding with investors, and can help illustrate your ability to generate income, manage your expenses, and remain profitable.

A profit and loss statement will include:

  • The total income of your business, which is your gross revenue
  • Total cost of goods sold (COGS), which is an itemized list of operating expenses that will be subtracted from your gross revenue
  • Any non operating expenses for your business such as loan or tax interest

Cash Flow Statements

A company’s cash flow statement helps track incoming and outgoing cash. It is an important tool in setting short-term financial goals for the business. Cash flow statements let you know if your business has a shortage of cash, in which case you will need to evaluate how to increase your cash flow, but they also tell you if your business has an excess of cash so that your business can purchase more inventory or invest in shares.

A cash flow statement includes:

  • Operating activities – Cash flow that generates revenue as well as money spent producing your products or services
  • Investment activities – Gains or losses due to investment in assets, including capital expenditures 
  • Financial activities – Cash flow of debt, equity, and dividends

The Experts at BradyRenner CPAs Are Here to Help

At BradyRenner, we are ready to use our combined decades of experience to help your small business set up reliable accounting, bookkeeping, and reporting systems in order to maximize your productivity. Our highly qualified experts know the ins and outs of running a small business and how vital it is to stay on top of your finances. Establishing these systems is part of an entire suite of financial services we offer to guide small business owners.

Contact BradyRenner today to discuss system design and upkeep services for your small business from opening day to final closing. And stay tuned for our next article which will explore capital investments and buy versus lease analysis.


Why Is Bookkeeping Important for Small Businesses?

Cash Flow Statement – Definition and Importance

Balance Sheet: Explanation, Components, and Examples

What Is A Profit And Loss Statement?

Why Are Financial Statements Important?