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  • Writer's pictureMichele Sweeten

Evolution of Accounting Systems

We’re familiar with all the stages of the awesome journey that is business ownership! There are different levels of professionals for each stage, but you call us at stage three and beyond, okay? Okay!

Stage One: It starts with an idea. It always starts with an idea. A business starts as a matter of necessity to support the dream. The business is simple: receipts in a folder, income in the entrepreneur's head, the bank balance is the measure of the business.

Stage Two: Over time, the business becomes more complicated. There are multiple jobs simultaneously. Maybe the deposits are a little too much to remember, so an excel exists somewhere to sum up the income. It's a struggle to compare income from one year to another, but it can be done in a few hours of pen and paper.

Stage Three: Oh hello, QuickBooks Online or Xero. Numbers are getting organized; there are categories for expenses; at this stage invoices and bills are flying around, too. Finally, the business has its own accounts and they're being reconciled monthly.

Stage Four: There's payroll; there's receivables; there's payables. The administrative team watches cash flow and incoming payments before paying every bill that hits the mailbox.

Stage Five: Now payables require an approval process because the organization is getting so big. Employees are clocking in and out by job and activity so profitability can be tracked by project. The Chart of Accounts is so detailed, umbrella accounts are introduced so the Profit & Loss can be rolled up to its constituent cost centers.

Stage Six: Here begins financial forecasting. Fancy financial footwork is required to match expenses to revenue, i.e. CPAs are utilizing journal entries to allocate payroll to the periods accrued, defer revenue properly, spread out prepaid expenses over the covered periods, and more. Everything is tied up in monthly journals, including interest, depreciation, and bad debt allowance. This stage often necessitates an internal CFO. Stage six and beyond will probably mean an internal financial team for your business. Our accounting department sweet spot is a company between one and twenty million in top line revenue, but, when you move past that range, we'll help interview, vet, and hire the right in-house team. We make it a smooth phase-out from Sweeten to an internal team, when the time comes.

Sweeten CPA journeys beside you as you transition from phase to phase, even, yes, to help you hire our replacement! We're rooting for your business and we're here to support you.

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