Accounting 101 for Startups
Accounting is as important for startups as it is for every other establishment – big or small. However, accounting is very vital for startups because they are run on a minimal budget. To get things right is to know the best ways to cut costs while maximizing profits.
As a founder, you will often find yourself handling every aspect of the business, from marketing, accounting to recruitment and others. To ensure everything is in its right place, you need to know a thing about accounting for startups.
Suggested reading for startups: If you run your LLC in Texas, or want to in the future, remember that using a Registered Agent in Texas can incur savings and help you in case you do not have a physical presence in the state.
In this accounting 101 for startups guide, we shall be examining accounting basics and how to ensure every detail is accounted for.
The Importance of Accounting for Startups
Every action carried out in a startup has a financial implication that will result in a debit or credit. Understanding accounting for startups helps you to reduce the debts and increase the credits to remain in business. Accounting also ensures that your startup is on the right side of the law as it covers payment of taxes.
Accounting is essential when running a business on a budget and vital if you have investors pumping millions into the startup. These investors will want every penny invested in the business accounted for, and the best way to do that is to get your accounting books updated.
For startups, some areas of accounting that should be attended to include:
Reconcile bank statements.
Every startup should always take a step within a defined period to reconcile their accounts. It is easier to balance your accounting books when your accounts are reconciled regularly. Gone are the days when you had to queue in a bank or print large documents in the name of bank statements. Today, several applications and online channels can be explored to reconcile your startup’s bank statement.
Reconcile credit card statements.
Reconciling your credit statements is as important as that of your bank statements. Your startup should be able to account for every charge made on its credit card, and it doesn’t matter how little it is. With technological advancement, credit card fraud is on the increase, and though some of these charges may appear little, accumulating them will reveal how much loss your startup is recording from these charges.
Keep a payroll for your employees.
If your startup has started employing more hands to get things done and ensure the business’s smooth running, you need to have a payroll. With a payroll, you can track how much is paid to employees and the time payments are made. Your payroll is helpful when auditing the financial statement of your business quarterly or annually.
Thankfully, several accounting apps can be used to manage payroll like:
Learn how to create invoices.
As a founder overseeing different parts of the business, you have to learn how to create an invoice. Invoices are given to customers for products or services offered and the prices at which they are offered. You may not have to worry about this when you employ an accountant, but do you have to wait until you get one before you start invoicing?
Always keep proof of payment.
Imagine a scenario where you have ordered some items from a supplier and made payment for them. Suddenly, you get a call from the supplier that they have not gotten the payment. How do you show them that the challenge isn’t from your end? This is where proof of payment comes in handy.
Whether you’re paying with a check or making online transactions, always keep the payment proof.
Track customer payments received.
We live in a digital age, and virtually everything has gone virtual, including businesses. If you want your business to thrive in this age, you need to create an online presence to complement its offline presence. Putting in place payment gateways that make it easy for customers to engage with your business is essential in all of these.
For all of these payment gateways, don’t just get excited alone, but take steps to track every payment made. Attach this payment record to the purchases made by customers.
Pay up bills at the time they are due.
As a new startup, several bills exist that you will have to pay. To build a good credit score for your business:
- Ensure you pay up your bills at the time they are due.
- When attending to bills that flow from your business, take the time to cross-check to be sure they are accurate.
- Make tracking of bills a culture for your business, and it should be done weekly, monthly or quarterly.
Figure out tax returns.
Tax returns may not always show up immediately when you start a business, but these tax returns will show up as your business grows. When they do, ensure they are immediately attended to and keep them for a minimum of three years.
Print and document financial statements.
Printing and documentation of financial statements on a weekly or monthly basis are very vital for every startup. While you can walk into a bank to get this done, several accounting software exists that can be used for it. Online banking can also accomplish this task quite easily.
Having the financial statement of your startup helps you cross-check it with your budget to determine how much profit or loss was recorded within that period.
How To Ensure Seamless Accounting For Your Startup
As pointed out earlier, accounting for startups is as important as everything that will be done to establish and sustain the business. Beyond knowing the basics of accounting for startups, you should also know how to ensure the accounting process is easy. Some helpful tips that can help your startup achieve this include:
- Set your financial goal for a given period.
- Find out what tools can make the accounting process easy.
- Review financial activities over and over again to be sure the details are accurate.
- Seek professional help where possible.
Knowing about accounting for startups is essential before setting up one. It prepares you to manage the business’s finances better, use the right accounting tools, and set the right financial goals.
As the founder, you may have to handle this yourself immediately after launch, but it is important to seek professional help as the startup grows. With the help of an accounting expert, you can be rest assured that everything regarding accounting for your startup will be done the right way.
Tide: Accounting for startups – The complete guide
Finder: Credit card reconciliation — How to reconcile a credit card statement
Invoice 2go: How to Create a Professional Invoice
Chron: How to Produce a Standard Financial Document & Report
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