Having worked with small and medium businesses for over a decade, we have come to realize that businesses struggle with how to set up an accounting department. The accounting and finance functions of an organization run smoothly.
This problem is even more severe amongst people that are tasked with the responsibility of setting up and managing a finance and accounting department for the first time.
Understand the business needs
The advent of risk-based approach to business processes has made it beneficial for organizations to always start all actions from the premise of gaining full understanding of what the prevailing business environment of the entity is.
To set up an accounting department that will be in sync with the current reality, managers must scan the industry that the business operates in, find out what accounting technologies are currently deployed by the players in that industry.
Once this is done, the business manager or owner should get feedback from those that are using the identified accounting technologies so that smart economic decision can be made from past users’ insight.
Determine the type of accounting system to be used
Armed with information obtained from the exercise of gaining understanding of the industry and unique business environment of the company, choice of accounting system is now made. The starting point is to decide on accounting method that will be suitable for the business.
There are three methods of accounting an entity can choose from. They are:
- Accrual method of accounting: accrual method of accounting aims at ensuring that revenues are matched to the cost of bringing the revenue. This is the most popular method of accounting.
- Cash method of accounting: as the name implies, cash method of accounting records revenue and expenses in periods when cash exchanges hands. and
- Hybrid method of accounting: this is the blend of both worlds of methods of accounting.
Draw up charts of accounts
Once the choice of accounting method is made, the next thing is draw up the charts of accounts for the business. In simple English, charts of accounts simply mean the list of accounts that an entity needs to open in order to ensure that proper classification of items are made in the bid to keep accounting records.
Don’t worry if you do not list all the possible accounts at once, you can always go back to update this record. It is now as simple as clicking on a button somewhere in your accounting software and you will be prompted on what to do next to add a new account to your already existing charts of accounts.
Draw up accounting manual, policies and procedures
There will be total chaos and disorder if you attempt to run an accounting department without these necessary documents in place.
In my experience as a fintech accountant, I have come across myriad of cases where the heads of accounts department seem not to see anything wrong with establishing an accounting department without putting these guiding documents in place – the end result is always a disaster requiring some sorts of cleaning up.
Things as simple as deciding on what depreciation policy to follow when a new asset is acquired is a big problem for organizations like the ones I mentioned.
Purchase accounting software or choose a cloud-based SaaS
Accounting software has long become an integral part of any accounting department. So, it will be strange to see an accounting department without a full fledge accounting software. It is no longer enough to have just spreadsheets like excel in your accounting department and still think you are doing well technologically.
How to purchase or acquire accounting software
The process of purchasing an accounting software starts from the software needs assessment of the organization. This is also referred to as end user requirement analysis. The aim is to gather all the needs of the intended users of the accounting software then use this as a basis for searching for vendors to contract for the supply and implementation of the chosen software.
The installation and configuration of the acquired software is the logical next step in the software acquisition lifecycle. A lot of business owners, especially the small business owners thinks that accountants are trained in the installation and configuration of accounting software. This is a costly assumption that has caused a lot of troubles for accounting department – desist from this practice if you have been doing so.
Employ suitably qualified staff: make sure that technology accountants are part of the team you are assembling for your accounting department. It is no longer enough to have only those that are vast in debit and credit. Knowledge of debit and credit are prerequisites for being an accountant.
The only distinguishing factor that you must consider when hiring accounting staff of your organization is their level of being technologically savvy. Get this right and your accounting will hit the ground and start running.
Design training package for the team: the days of solely relying on the basics of Dr. and Cr learnt in school as an accountant are over. Technology accountants come up with ground breaking solution to accounting problems on a daily basis.
Having a structured training program for your accounting staff is a must if you really want to build an accounting department that is robust enough to keep up with the fast pace in business environment.
Design or adopt a chain of command: having an actionable and respectable chain of command program in your account department is very important. Authorities and boundaries should be recognized.
Periodically review the system and make modifications where necessary: accounting and finance departments are not static in nature. To still be relevant, business owners and managers need to regularly review the operations of the accounting department and adjust where needed to reflect the current economic, regulatory and business environment.