Startup founders have a lot on their plate: product development, fundraising, sales, marketing, and more. As a result, they tend to have little bandwidth left to pay attention to accounting. But adequately reporting finances and paying dues in taxes is essential for any successful business. The process is a meaningful way to gauge financial health. It also provides valuable insights that can lead to growth.
Here is some vital accounting advice for startups that any business owner should heed as a way to achieve financial success. Let’s consider everything from hiring a professional accountant to proper bookkeeping.
Hire an Accountant
Does a startup need an accountant? Many people might think no. How hard is it to keep track of finances and file taxes anyway? But the advantages that come with hiring an accountant go well beyond these. An accounting professional can give you valuable advice about money management, as well as help you cut costs come tax season. They can also examine your financial data and forecast cash flow. They will also guide you to perform accounting best practices.
It can be even more advantageous to hire one from the get-go so that all the questions you should ask an accountant when starting a new business, from which business entity is best to how to prepare for tax season, can be answered.
Knowing how to find a business accountant starts with understanding the financial needs of your business. From there, you will know what services you need, how often you’ll have to consult with an accountant (e.g., regularly, once a month, etc.), and the expertise you require.
Separate Personal and Business Expenses
It can be challenging to manage finances when you have to comb through receipts and bank statements to sort out personal and business expenses. That’s why you must open a separate bank account for your business, which makes it easier to track and substantiate business expenses so you can take advantage of tax deductions. Most business bank accounts also offer a line of credit that your startup can use to cover cash gaps.
Set a Budget and Financial Goals
One of the first steps in making a business plan is defining a budget, which allows you to anticipate expenses, along with helping you manage cash flow and fundraising efforts. Besides having a budget, you should set financial goals to aim for monthly, quarterly, or annually. You can tell a lot about your startup’s financial health by comparing your actual numbers with your budget and goals; these will tell you where to adjust and what to do to improve.
Know the Law
Tax season is a pain—but only if you’re unprepared. So it’s good to know the law beforehand to have the information you need about important dates, record-filing requirements, etc. Do some research or ask your accountant about the relevant regulations that apply to you, especially regarding the type of business entity you run.
Keep an Eye on Expenses
Many businesses fail because of poor cash flow management, so it’s crucial that you keep a watchful eye on your expenses to make sure that you’re spending based on your budget, rather than burning through cash too fast.
If you’re in the pre-revenue stage, make sure to create a financial forecast to predict what expenses you have yet to spend on, plus how long it’ll take before you have to begin another round of funding. If you’re already earning revenue, break down your budget into categories and be firm in collecting your receivables.
For a lot of startups, labor and inventory are the most significant budget eaters. Be sure to figure out ways to better manage these expenses (e.g., explore outsourcing employees or consider changing suppliers) where possible.
Get a Good Accounting Software
Though convenient, it’s not advisable to track your expenses via a spreadsheet. These are prone to human error, and these discrepancies can end up losing you money, either through lousy bookkeeping or penalties for incorrect reporting.
Invest in a good, preferably cloud-based, accounting software. Not only can these streamline and automate your bookkeeping operations, but they can also send invoices or generate financial reports. A variety of cloud-based accounting software also has the advantage of securing your financial data, providing you with backups if needed. You can also give access to different team members anytime and anywhere, which is a plus if you work remotely.
Keep Records Accurate and Up-To-Date
Financial insights can only be as accurate as that of the data which informs them. So if your books and records are all over the place and outdated, it won’t give you a clear idea of how your business is doing. This lack of organization might come with heavy consequences, not just with the law but with the fate of your operation in general.
If you can’t do it yourself, consider hiring a bookkeeper who will track and record all transactions and ensure that all your books are balanced.
Conclusion: Set Yourself up for Success
Successful startups require a good foundation—and that includes a solid accounting system that keeps the company afloat. Suppose you’ve prepared enough from the get-go, which is much easier to do with the help of an accountant. In that case, you can better anticipate expenses, manage cash flow, and take advantage of tax deductions; all without having to spend too much time crunching the numbers yourself.
