Regardless of how much money a company makes, efficient money management is one of the essential parts of success for business owners. Because your books are the only accurate representation of your revenues and losses, how you keep them may make or break your firm.
Bookkeeping keeps track of your business’s financial information, such as receipts, costs, invoices, and bank statements. Even the most innovative ideas in the world won’t keep a firm afloat if the cash runs out, so effective bookkeeping is critical to any business’s success.
As soon as you start your business, you should implement a sound bookkeeping system. Here are some startup bookkeeping recommendations which you can use to succeed in your industry.
1. Determine your goals
You’ve undoubtedly identified a mistake in your current plan if you’re looking for a bookkeeping checklist. You’ll be able to decide on an appropriate method of action going ahead by creating goals and acknowledging known flaws with your bookkeeping processes.
For a variety of reasons, startups may need to clean up their books:
- You need to file state, local, or federal taxes, but your historical data is inconsistent with bank accounts and other accounting records.
- You’re unsure if you correctly classify income, expenses, inventory levels, or other crucial financial data.
- You’re looking for funding, a line of credit, or a business loan, and you’ll need reliable financial statements to complete due diligence.
- You can’t detect what’s causing inconsistencies on balance sheets and other financial documents.
Prepare to discuss your goals with your finance team by asking why you need to execute a cleanup project.
2. Start by using the correct accounting method
It’s not only a matter of keeping track of money coming in and going out when running a business. Instead, how you manage your business finances is influenced by the timing of when you record income and expenses.
Put another way, and you need to decide whether you’ll utilise cash or accrual accounting before you start selling anything. Using cash-basis accounting, you only record income and costs when money has changed hands. If you bill someone for a project, the funds will only be recorded as income once it reaches your account. The same goes for expenses.
In accrual accounting, on the other hand, income is recognised when earned, and expenses are recognised when incurred. You record the money after the task completion if you’re hired for a job, even if the client hasn’t yet paid you. You’d also keep track of your expenses as soon as each bill arrives or work is done.
Choosing between cash and accrual basis accounting impacts your bookkeeping since it affects how you make day-to-day financial decisions and plan for the future.
While each accounting method has advantages and disadvantages, accrual-basis accounting typically provides a more realistic view of your company’s finances and performance.
Accrual accounting is also better from a tax standpoint since you can claim company expenses on your tax return in the year you incur them rather than the year you actually pay them.
However, it’s critical to maintain consistency to keep accurate financial records regardless of your method.
3. Good accounting starts with sound systems
Accounting is more than just hiring a reliable small company accountant to handle the numbers for you; it’s also about the suitable systems to ensure that your finances are accurate and well-managed.
With the right system, you can do the following:
- Reduce errors and mistakes
- Allows you to create the data you (and your investors) require automatically.
- Payroll, reporting, invoicing, and other tasks can all be automated.
And it’s all done on a single, simple platform! Of course, your system shouldn’t be overcomplicated. You’re a startup, and therefore you probably don’t have the workforce to dedicate to a more comprehensive approach.
4. Keep your personal and business finances separate
It is a common mistake made by all startups, whether new or established.
It’s tempting to use your accounts. After all, it’s easier, saves time, and ensures that you get paid immediately.
However, it comes with several drawbacks:
- It puts you in direct contact with business liabilities and debts.
- Business taxes and expenses come straight out of your savings
- It complicates your accounting.
- You are maybe missing out on a lot of business tax breaks.
Unfortunately, switching can be tricky – depending on how long you’ve had this arrangement, and it could take hours to disentangle your personal and corporate accounts.
You don’t have time for that; fortunately, the startups bookkeeper can take care of it.
5. Track revenue and expenses
A developing business can’t usually keep track of its revenue and expenses with a simple spreadsheet. Robust accounting software is beneficial because it can track one-off and recurring expenses.
Receipt recording in these applications is simple, but you must enter receipts weekly or even daily if you receive a lot each day to ensure an accurate financial picture. You should keep track of all your receipts, no matter how trivial they seem.
Accounting software can also categorise expenses and revenue streams to help you keep track of your overall financial patterns and uncover growth opportunities based on past data. You may review these patterns at any moment if you follow bookkeeping best practices and record transactions correctly.
6. Use automation tools with your accounts receivable
Another excellent bookkeeping idea is to automate your accounts receivable. It is the amount of money owed to your company. You may have accounts receivable if a customer has not yet paid you.
Begin by laying down clear payment conditions and communicating the consequences of late payments. However, it does not guarantee that your consumers will pay you on time. You may need to follow up with reminder emails and phone calls.
However, if you’re managing a dynamic startup, you might not have time to follow down on your customers. Using good online software, you can set up automatic emails before and after their payment due date.
7. Make a schedule for bookkeeping
You will set aside time if you have an important call to make. So, why not make time for your bookkeeping as well?
Schedule a review of your books once a week or once a month. In the long term, this will save you time. Furthermore, it ensures that you will be stress-free at the end of the financial year!
Even if you outsource your accounting, setting out time for your books is smart. You can manage your cash flow by keeping an eye on your bookkeeping. It can assist you in making decisions.
8. Set aside for the taxes
Though most people know they will have to pay business taxes, very few first-time entrepreneurs plan for taxes. The problem is that when tax season arrives, several business owners discover they don’t have enough cash on hand to pay their bills.
As a result, one of the ideal cash flow management tactics is to set aside money for all of the business taxes you’ll have to pay during the year. You should set aside around 30% of your income to meet taxes as a general rule- this will usually cover both VAT and business taxes.
How you set away this money is also significant for bookkeeping purposes and will be determined by the type of business you operate. You won’t have a previous tax return to assist you in estimating how much tax you’ll owe if you’re a first-time business owner. In this instance, the ideal way to save is to place 30% of each client or customer payment into a company savings account or a specifically designated account for this purpose.
Putting this money away can help you get a better view of your company’s finances and guarantee you don’t spend money that should be going to the government.
9. Attract investment
Other organisations use accounting to make decisions. Startups use accounting to do that and also to attract investors.
You have a fantastic idea for a startup. However, you’ll need money to develop that idea into a natural product and a profitable business. Accounting is critical in convincing investors to invest in your company.
Without a good business accountant, you can’t have proper accounting!
An intelligent accountant understands the importance of acquiring funding for a business and will develop reports specifically for that purpose.
Getting your startup an excellent kick to a great start is only half the battle; the other half is maintaining it profitable over time. Maintaining a company’s growth path is difficult since it necessitates ongoing observation and innovation.
Following the advice mentioned above will enable you to keep a clear eye on your company’s finances, focusing entirely on developing new ideas and driving your startup to new heights of success.