Becoming an entrepreneur is fun, and having good finances is indispensable for the long haul. To put it simply, knowing accounting or bookkeeping will assist you in closely tracking your revenue and expenditure and financial health.
If you are a new business owner, then here’s a guide for you which will tell you all about bookkeeping for startups and how to do the same.
How to Start Bookkeeping and Accounting for your New Business?
There are different steps that you need to adhere to to know about accounting startups, so get ready to learn all about the same.
- Establish Your Financial System
From the outset, create a financial organization framework that suits your business needs. You can choose either the cash-paid accounting system or the accrual accounting system based on your needs and preferences. If you have a scaling business, then we recommend choosing the accrual method.
Even if you have a personal bank account, you need to start a new one to keep your company finances separate from your accounts. Software like QuickBooks, Xero and FreshBooks automate the startup bookkeeping process, collect data and focus on record keeping for simpler financial management.
- Essential Financial Statements
Understanding and maintaining financial statements is crucial for assessing your startup’s performance:
- Profits and Loss Statement: A summary of the revenues, total expenses incurred and thereby the net income, during a specific period.
- Balance Sheet: It means an asset in table form and sum liabilities with equity.
- Cash Flow Statement: Movement and flow of cash within a particular organization.
You need to learn all about these statements to make sure that you have all the information that you need.
- Managing Cash Flow Effectively
Since cash flow is the main artery of any business, take a look at how you can keep your cash flow healthy.
- Monitoring Receivables: The timely accounts for putting up invoices from clients and then for tracking unpaid invoices.
- Control Expenses: Necessary and unnecessary costs are differentiated to ensure that spending is minimized.
- Maintain an Emergency Fund: Sometimes, incomes and expenses are not as expected. Hence, it can have a good amount of financial cushion.
- Tax Compliance and Planning
Accounting for startup costs also includes proper tax planning, which prevents penalties and ensures compliance.
- Understand Business Taxes: Depending on the structure of your business, e.g. corporation, LLC etc., certain taxes may have to be paid, like income tax, payroll, or sales tax.
- Keep Accurate Records: Maintain all receipts and invoices in order to substantiate any deduction claimed as well as audit purposes.
- Hire a Tax Professional: Hire an accountant to help with tax optimization and filings.
- When to Hire an Accountant
Accountants are available for hire only after doing the initial accounting by yourself, which works for small start-ups. But as it grows, hire an accountant when:
- The financial transactions become complex.
- You need help with tax strategy and compliance.
- Fundraising requires preparing financial reports for investors.
So the founders, knowing where and how to get accounting and bookkeeping information, will have the requisite skills to manage finances well, thus causing the stabilization and growth of business.
