How to Setup Accounting Department for Small Business

How to Setup Accounting Department for Small Enterprises

How to Setup Accounting Department for Small Business

This post will show you how to setup accounting department for small business (SMEs), including other elements that you need in setting up your financial reporting and account management systems. As one of the best accounting and audit firms in Lagos Nigeria, we can help you grow your business with a functional accounting department, small business accounting services, bookkeeping and accounting software solutions.

Setting up an accounting department is perhaps the most significant steps to start an organization on a strong footing. An accounting department is that imperative and highly significant part of a business that is made up of people who are responsible for managing and organizing the flow of cash in or out of the company.

The accounting department records accounts payable and receivable, it keeps payroll records, procurement and inventory records, as well as all other important financial elements like fixed assets or property accounts. This department can be considered as the heart of any company’s growth and development – since no business can succeed without a proper cash flow management.

In fact, the measure of how well an accounting department functions in a firm shows how well the company as a whole is performing in terms of financial standing and assets valuation. Usually, a typical business organisation may consist of the following six main departments or functional areas:

  • The Production Department.
  • Research and Development (R&D).
  • Purchasing or Procurement Department.
  • Marketing Department (including the selling functions).
  • Human Resource Management.
  • Accounting and Finance Department.


Therefore, the Accounting and Finance Department is responsible for all the finance related activities in an organisation which include:

  • Organizing finances
  • Managing finances
  • Auditing finances
  • Controlling and distributing finances
  • Planning for finances, and
  • Accounting for finances.

These roles also includes recording of all the documents required for financial objectives of the business. So, if you are thinking about how to setup accounting department for small enterprises, SMEs or even large companies, then below are some of the steps you must take to get things done.


How to Setup Accounting Department for Small Business in 5 Easy Steps.


Step1. Setup the Accounting Units

As the business owner or accountant, it is important to setup proper accounting system that is aimed at providing general accounting recordings, daily bookkeeping and documentations which will help the company achieve its profitability objectives; as well as company mission and visions.

Thus, while setting-up your finance department, the following are the main classifications you can follow:

  1. Accounting Department / Treasury Department
  2. Internal Audit Department

Depending on the budget or level of the organization, these units can also be managed by one experienced accountant, or more than one accountant who has established integrity, competence, trustworthy and commitment in their fields.

Now, let us cover some of the responsibilities of the individuals working in these accounting units.


Account Department / Treasury Department

  • They prepare the monthly and yearly Management Reports.
  • Cash Management Reports (This includes Cost Cutting, Cost Effectiveness and Expenses that relates to Cash Flow, and Cash control polices)
  • Budget Control Reports
  • Taxation Reports (VAT, WHT, PAYEE and other relates Taxes)
  • Inventory Reports (Stock counting report)
  • Debtor Report / Creditor Report
  • Book-keeping Reports (Creating Book Ledgers for Accounting Uses)
  • Fixed Asset Registers.
  • Cash Flow Management
  • Reconciliation Reports.


The Internal Audit Department

  • They are responsible for establishing and implementing internal control mechanisms and procedures.
  • Performing audit functions on company payroll and billing systems.
  • Assist in developing new or refining existing accounting policies and procedures.
  • Assist in streamlining current business processes to improve the overall efficiency and effectiveness of the company.


Step2. Select Best Accounting Method for the Business

Now, the company has to decide which accounting method will be most useful for its operations, and this is usually depends on the size of the business. For the sake of this guide, there are two choices available to you and we can explain.

  1. Accrual Accounting Method.
  2. Cash-basis Accounting Method.


The Cash-basis Accounting Method

In this system of accounting, companies record income when cash is received; and record expenses when the company pays out cash to its suppliers.

Cash-basis accounting is reliable when you want to track the actual amount of money entering and leaving your company. This is a common accounting method that is used mostly by small businesses that tend to make immediate payments for goods and services received.


The Accrual Accounting Method

In this type of accounting method, the company records income whenever a sale is made, regardless of whether they receive payment for it, or sold goods on credit. The company also records expenses whenever goods or services are received, regardless of whether the company pays for it.

Accrual accounting method provides useful information to the company financial transactions – regarding how much expenses it is incurring each month; and how much profit it is generating. However, this method of accounting is used mostly by large businesses or even smaller businesses that tend to buy and sell goods or services on credit.

Therefore, your company can pick and use any of the accounting methods stated above. But a company will use the cash-basis accounting method, as long as it’s annual sales are less than 5 million NGN or about 13,000 USD.

If the annual sales value is more than the above stated sum, the company thus maintains an inventory (in which case, it must use the accrual method). As a small business owner, we recommend using the cash- bass accounting method, so your reconciliations will easily be done monthly.

How to Setup Accounting Department for Small Business

how to setup accounting department for small enterprises
Accounting Tools.


Step3. Implement Information Technology in Finance

Today, the importance of information technology in financial management can never be over emphasized. This is because using IT in finance is similar to the use of the computer systems for accounting data processing and analysis. The running of a finance department always involves several important records, and also demands constant documentation of accounting information, all of which cannot be done without the help of a computer software.

So, if you are just starting a business and want to set up the accounting department, this may include choosing the right account software to be used in your account management system. Most Professional Accounting Software simplify the lengthy tasks of maintaining accounting records, renewing them, updating them and then saving them for future uses. Some of the software we use today hold great significance in the smooth functioning of a company’s finance department.


Some Benefits of using Financial Software.

  • Automation: With cloud computing accounting packages, everything is now automated in a way that a change made in one record is immediately updated in all other files.
  • Reporting: Accounting software helps in reporting and in the quick formatting of account records following the formal business management language.
  • Functioning: With computer software, data can easily be transferred from one department to another by the click of a button. Accounting or employees records can be stored, accessed and updated without any time wasting.
  • Controls: By purchasing and implementing good accounting software, your business transactions can be allowed or prohibited even when the bank itself is out of service so the organization suffers no loss.
  • Convenience: Accounting software allow quick and hassle free deposits and transactions – alongside receipts for future records.
  • Budgeting and bookkeeping: Financial software helps in budgeting. It provides a quick review of all past budgets – making it easier for users to formulate and anticipate budgets for the future.


To help you find the best accounting software for your type of businesses, here are our list of small business accounting software for your consideration.

Most accounting software solutions are similar with key features, such as automated entries, bill payment, invoicing, expense reports, financial reports and reconciliation. We help different businesses setup account management systems to suit their operations.

List of Small Business Accounting Software

  • Xero Accounting Software for Mac
  • Sage 50c Accounting Software
  • Excel Bookkeeping Templates
  • Account Edge Pro
  • Wave Accounting
  • Peachtree
  • Quick Books
  • Tally ERP
  • Pastel Evolution
  • Zoho Books
  • FreshBooks
  • KashFlow


Step4. Carryout Reconciliation Exercises

Account Reconciliation is very important in the day to day activities of any business organizations or companies. As the chief account or company head, you should follow a routine check on accounting records and carryout self-audit to evaluate your business financial activities.

Below are some of the things to lookout for when carrying out Account Reconciliation Exercises:

  • Consider Bank Reconciliation –including payable and receivables.
  • Carryout daily or monthly Cashbook Reconciliation exercise
  • Check Cash/ Bank Sales /Credit Sales Reconciliation
  • Don’t forget your POS (sales) Reconciliation
  • Stocks and Inventories Reconciliation
  • Debtors/ Creditors Reconciliation
  • Purchases/ Suppliers Accounts


Step5. Hire the Best Qualified Accountants

Most entrepreneurs, business owners, and CEOs typically don’t have the expertise to run every department in their  companies, especially if the business is growing rapidly. To handle both the bigger and day-to-day financial operations, it is important for any business, whether a small business or a large corporation to hire qualified accounting professionals.

Some times, having a degree in accounting is not enough. This is because the field of accountancy is a broad one and every business industry across the world has a need for accounting experts or CPAs. A company needs a team of chartered accountants or a professional accounting firm that can man over their taxes regimes and handle everyday accounting books and report statements.

If you have the budget, you will need a bookkeeper, an accountant, chief financial officer, and a business specialist who is skilled in tax law, mathematics, and statistical data analysis. This is a sure way to save time, cost and free yourself up to focus on running your company and growing sales without being bogged down by facts, figures, numbers and calculations.

Also, the main reason to hire financial professionals and business management consultants is to have trusted advisors who can help you evaluate risks, run your business, analyze financial records, check for inconsistencies, errors – and protect your assets.


Wrapping up: How to Setup Accounting Department for Small Business

Now you know How to Setup Accounting Department for Small Business right? Most small and medium sized business or entrepreneurs often neglect the peripheral activities involved in setting up financial reporting and account management systems.

Knowing how much profit you earned in a month, how much cash is being generated, and having sufficient cash in hand to pay debts and purchase supplies requires good accounting records. The significance of a finance department in an organization is therefore colossal if the business is to achieve it set financial goals.

A well structured business can file its own tax returns, control its business transactions and access bank loans with good accounting records and cash flow statements. In fact, without a well-functioning and smooth running financial unit, no organization can anticipate success in this competitive market.

Your ability to succeed will depends on the possibility to anticipate financial risks before hand, and avert the negative side effects proactively. This success can only be instigated by the optimal performance of a finance department which provides useful data that allow the organization to make informed business decisions, and be able to maintain its overall performance.


 By Adesalu S. Adekunle

Finance Management Consultant at Abbakin Glova Solution Limited.


Related: Why Business Owners Are Not Qualified To Access Loans


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