New Venture Lab: Equipping Christian Entrepreneurs

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I would recommend that you always use proper GAAP accounting.  GAAP stands for "Generally Accepted Accounting Principles" (see the full definition here in our Glossary.)  GAAP standards outline how you should present financials so that we can all speak a common language when we look at financial statements.   Most entrepreneurs use the cash or modified cash method of accounting because it is easier.  However, I recommend that you start with -- and continue using -- full accrual accounting with standard Income Statement, Balance Sheet and Cash Flow Statement reports, even if it is more complex, for the following reasons:

• Accrual accounting is what the GAAP standards call for (GAAP publishes guidelines for each industry that should be followed as closely as possible -- your accountant/CPA can help you with this)
• Accrual accounting will provide you more insight into how the business is performing (similar to a pilot having more gauges on his instrument panel)
• Accrual accounting is what will be used for any financial audits and the cost of the audit will be considerably higher if your financials have to be converted to the accrual method
• Accrual accounting is what bankers, lenders and investors will require in the event that you capitalize your business with outside capital
• Accrual accounting will be easier for a potential acquirer to read and interpret if you ever decide to sell your business
• Accrual accounting will be easier for any potential partner, provider, landlord, etc. to read and understand whenever you enter into a strategic business relationship or a lease (you may be surprised at how often you will be asked for a copy of your company's financials)
• Accrual accounting will lend your company more credibility because they present a more thorough and professional appearance compared to other less sophisticated methods of accounting