The value of accounting

A classmate getting ready to launch a business (www.soupcycle.com), recently asked me about accounting systems. Specifically, what should they do and of course, what will it cost?

I recommended QuickBooks given their size, budget and sophistication. However, while QuickBooks will cost anywhere from $200-$450 for the software depending upon the version, this is really just a fraction of the total investment.

After opening the box and installing the software, the chart of accounts, terms, items, vendors, employees, customers and more must be created in QuickBooks. Transactional systems outside QuickBooks must be designed, tested and implemented so individual transactions ultimately get recorded and summarized properly in the financial statements and other accounting reports.

While all of this costs money, I prefer to think of this as an investment in the efficient operations of the business. A well created accounting system is a valuable intangible asset. It provides a significant level of the internal control environment for a small business. Your accounting system should provide timely and accurate financial reports to help you assess progress, problems and success. A quality financial reporting system should make you more attractive to lenders and investors, all other things being equal and it will save you money when it comes time to prepare your taxes since the data will be easier to work with.

Small business leaders have so many things to think about. Failing to recognize the value and importance of a quality financial reporting system is a costly mistake. You wouldn't start a business without a marketing plan. You shouldn't start a business without an equally robust accounting and financial reporting plan.

How much should you spend on accounting? I don't have a specific number or percentage but the number is larger than many start-ups suspect and is a valuable investment and component of a successful enterprise.