Your online business must have an accounting system. It can be sophisticated, or it can be very simple, but you need one. Your accounting system will:
- keep track of critical tax information
- provide a scorecard of useful information to help you track your performance
- prevent errors and fraud.
If I’ve not persuaded you so far, this should do it: The IRS requires you to have one. ’nuff said.
What kind of system should you have? It depends on several factors:
- How many transactions you have a year. (A transaction is either a payment received from a customer or a payment made to a supplier/employer.)
- How many different suppliers, customers and employees that you have.
- If your business keeps one or more separate bank accounts.
- Size of your business, measured in revenues.
The number of transactions, the number of different suppliers, use of one or more separate bank accounts, and the amount of revenues all determine how sophisticated your business is. The more sophisticated your business, the more sophisticated of the accounting system you need.
Suppose your business is like a consulting business I used to operate a few years ago. I had one customer and received 4-6 checks a year. I kept a simple spreadsheet of the checks received. That worked just fine. Even with a few different business expenses, a simple spreadsheet, like my Google Docs template, should suffice.
More sophisticated businesses will need dedicated accounting software. I’ve advocated for GnuCash project, which would meet many users’ needs. If you’re ready to pay for commercial software, Quickbooks and Sage-Peachtree offers more sophisticated options, with significantly more functionality. I recently found other “cloud” options, free agent and kashoo, which looks great (I haven’t tried it).
When buying commercial software, you are usually best off buying the minimal program (which might even be free) and then upgrading if and when you need additional functionality. Cloud options may require monthly payments. I don’t like monthly payments. However, they will not charge you for annual upgrades.
What accounting program do you use for your business?
[Image: Wikimedia Commons]