Millions of startup and small business owners are professionals in developing top-notch goods and services, creating efficient teams, and attracting clients. But many would likely fail to understand which accounting basics to track for their business.
Numerous reasons indicate how crucial it is for a business owner to monitor their firm’s performance and position, including financial development, revenue, expenses, income taxes, and everything else that promotes company growth. Here are a few crucial documents you should track as you expand your firm.
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10 accounting basics every startup needs to track
1. Accounting costs for startups
As a startup, remember to keep a record of your financial expenses because financial preparation allows you to prepare a budget for both expected and unexpected expenses. A detailed grasp of your financial condition will help you make better decisions that will maintain the viability of your business and boost sales.
As a startup company, you must immediately build good credit with your suppliers. That includes paying your payments on time. However, check each bill that comes in to ensure it is accurate, as an inaccurate bill can slip through the cracks, resulting in a loss of revenue.
After entering your bills in accounts payable, record them weekly to ensure that they’re paid on time. You’ll probably have to pay late fines, interest charges, or both if they’re not.
You should also keep track of smaller costs like mileage, parking, mailing, and printing. Monitoring business expenses correctly will ensure that your year-end deductions are precise and that you have the documentation to prove them.
One of the essential things you must understand is to create an invoice. After all, how long can your company survive if you don’t charge your clients for the goods and services you deliver?
The startup accounting software like Xero will have an invoicing feature that can track accounts receivable. Deliver invoices regularly and follow up on them if you want to be paid on time.
4. Credit card statements
It is essential to reconcile your credit card statements as it is your bank statement. Credit card frauds can sneak up on you with many minor charges to check if you’re paying attention. Be sure to have a backup for every charge on the credit card statement. This is especially significant if you have a business credit card used by numerous employees.
5. Income statement
The income statement, usually referred to as the profit and loss statement, shows how profitable your firm is over a period of time. This report differentiates revenues and expenses to check how much net income has been produced. You can then use that information to evaluate how well your startup performed during that period.
6. Retained earnings
The retained earnings account records any business profits reinvested in the company and not paid to the shareholders. They are cumulative, implying they appear like a running total of money retained since the business started.
It doesn’t take much time to track this account, and investors and lenders who wish to monitor the company’s performance over time will find it helpful.
7. Bank statements
Your bank statements specify all of your accounts with the financial institutions. The accounts may also include your checking, savings, credit card and investment records, and you can reconcile your bank accounts with the financial documents you must track.
Examine your bank statements for possible errors by comparing them to your financial records. Your books may be mistaken if your bank statements and accounting records do not match. You can also track your company’s progress and file your taxes using your bank statements.
8. Licenses and permits
You might need to get several licences or permissions from the state or local government to run your firm. You can also be required to apply and obtain industry-specific permits or licences depending on the industry in which your business operates. For instance, a company may need a health permit to sell food or beverages.
Keep track of your licences and permits because you might have to renew them periodically. And also, keep a check on changing laws for your business’s permits or licences. If a rule changes where you must post or how frequently you must renew a licence or permit, comply promptly to avoid fines or penalties.
9. Business loans
To manage your business’s credit rating, it is also essential to monitor loan activity. You can create a process or system to schedule regular checks of all loan activity. In addition, you can also have your team create follow-up dates with lenders to offer them updates on the development of repayment and re-negotiating interest rates.
The key is to stay aware and guarantee no loan activity is flying under the radar. Keeping track of business loans will be crucial to achieving your overall risk management objectives.
You can select the record-keeping strategy that best meets your demands based on the size of your company and the number of services you provide. If your business is considerably larger, you can use mass data-collecting software.
Payroll is not a problem if you are working without any employees. But if you even have one employee, you’ll need to track payroll carefully. This includes all aspects, from keeping employee time records to monitoring the work carried out by them.
The best way to approach payroll is to purchase payroll software that does most of the work for you, and if you do it yourself, you’re liable for tracking all the payroll records properly.
A company determines its success on its financial standing, long-term outlook and profitability. How well you track and keep your business records can influence these aspects. Keeping track of information such as business loan activities, revenue, expenses, accounts, receipts, and more can be an excellent place to start managing your financial records effectively.
With additional oversight into these crucial areas of the company, you can make adjustments quickly and prepare your company against fluctuations in the economic environment. Consider tracking the accounting basics mentioned above with your team and create a consistent growth plan and increase profitability.