How to Set Up Accounting for Small Business in the Music Industry
- 1). Collect a list of all available accounting software and analyze the differences. There are several accounting software packages from Quickbooks and Peachtree in the $100--$300 price range as of September 2010. Most accounting software have similar features and advantages. You should choose based on quality, price, and extra services such as online backup and customer support.
- 2). Pick an accounting method; either cash method or the accrual method. The cash method accounts income or expenses only when you actually receive or pay it, but the accrual method accounts when you make a sale or incur an expense irrespective of receiving or paying money. Since you are operating a small business in the music industry, you will deal with immediate payments for your products through credit cards, check or cash rather than invoicing or delivering a product before being paid for it. The cash method is generally more suitable for this type of business. However, if your business starts providing a lot of services where payment occurs later, then it might make sense to use the accrual method.
- 3). Record transactions with a set system.The software will automate and perform many of your routine tasks such as creating invoices and income statements. If you are renting out studio space or teaching lessons you can simply record all the revenue by entering the date and amount into the software.
- 4). Check the regulations for your state, city and county tax, wherever applicable. Your accounting software may provide links to these sites and tract your sales tax information. Make sure to obtain information regarding withholding taxes, company deductions and employee pay rate. List all the possible ways your music business will make money, and inquire with your government if you need special business licenses for rendering these services. For example, you may need a resellers license if you're selling music equipment or other music merchandise at your business.
- 5). Make a list of your customers and vendors separately for easier access in the software system. Have a list of your products and their prices separately. Enter all these into the software, to automate and expedite the accounting system.
- 6). Set up your chart of accounts that includes all the accounts such as expense account, asset account and others. Enter all music equipment in to the asset accounts, and any outstanding loans into the expense accounts. This will help you accurately determine the value of your small music business at a glance.
- 7). Maintain your accounting system by using it properly and reconciling with your bank statements.
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