Startups can grow into successful companies only when their finance and accounting are handled correctly.
Maintaining accurate financial records is essential for any business, especially startups. It helps you prepare a business running budget and file tax returns.
With up-to-date financial records, you can make sound financial decisions, stay organised, protect yourself from potential losses or threats, look for opportunities, and build trust with customers and investors. Failure to keep the records updated can mark your business as a fraud at worst and end up paying penalties.
Startup owners spend most time dealing with core activities. Hiring a small business accountant UK can solve your financial issues efficiently. In this guide, let us understand the need for accurate financial record keeping in startups.
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Why must startups focus on accurate record-keeping?
Every successful business must have a strong base, and accounting ensures stability. Accounting for all business is essential, no matter what you do or what you sell, but an understanding of financial status regularly and meeting your legal and tax obligations is a must.
Record keeping, also known as bookkeeping, is the process of recording business transactions and events in a manual or digital ledger.
Here are top 8 reasons why startups must keep their financial records accurate.
1. Prepare valid financial statements
Startups must ensure they analyse financial records monthly or quarterly. If the original data is inaccurate, your statements will mislead the company with a fake business performance image.
For example, if you have made a mistake in recording sales or did not record bills from a supplier, will your income statement disclose the actual scenario? No!
2. Know your real financial situation
These records track income, expenses, profits, loss, equity, liability, assets, etc., all essential to detect a business’s financial position and performance. Timely updating them gives you an accurate picture of your finances.
3. Control cash flow
As a startup business owner, you need to handle a lot of expenses, including paying your creditors and employees, outstanding supplier payments, purchasing equipment or office supplies, etc.
You will go bankrupt if you don’t have an accurate record of all your expenses. Businesses must check their income and expense ratio, create a budget, and stick to it.
4. Prepare tax returns
Self-employed people must prepare their tax returns at the end of a financial year. If your financial records are accurate and updated, filing tax returns won’t be a headache.
Even an accountant can look into your eligibility for availing tax-free allowances and deductions by looking into the numbers.
5. Raising funds get easy.
When startups look for an investor, they look into the business financials. Keeping accurate records helps you create original financial statements.
They give insights into how your business is performing and forecast how you will deal with adverse situations in future. If investors are satisfied with your numbers, the chances of getting funds increase.
6. Making sound financial decisions
An accurate financial record sheet is the window to your business performance for a specific period. It helps you understand where to make improvements, look for opportunities, find any discrepancies, need a budget, etc.
With the correct data, you can prepare plans to deal with present or future situations and make financial decisions.
7. Maintain good relations with suppliers
If you are not paying suppliers on time, you will lose them soon. Keeping accurate accounts payable records allows you to track all your debts to suppliers, understand when to pay them, and save suppliers time in sending you payment reminders.
It is already hard for startups to find suitable suppliers in the beginning days, and losing them is the worst.
8. Solve finance-related customer queries
For startups, every minute is valuable, and providing customer service cannot be avoided. If your records are accurate and well-organised, you can quickly answer any finance-related customer queries. They won’t wait for days until you find the original bill before spreading ill words about your mismanagement.
How to keep accurate financial records?
Here is how you can keep accurate records
1. Update financial records on time
You must add any transaction on the sheets immediately when it happens. Startup owners have huge responsibilities that can prevent them from adding records on time and piling hundreds of bills on the desk. Now, it becomes challenging to find each bill and record them.
2. Keep business and personal finances separate.
Most businesses make mistakes in recording financial records when they pay business expenses with personal funds or the opposite.
You must have separate business and personal funds to separate income and expenses, and don’t mess up with numbers. Furthermore, you will underpay or overpay taxes with the wrong details.
3. Use a software
Every startup needs to set up a bookkeeping system during the initial years. You can use the right accounting software that fits your day-to-day activities instead of keeping paper records. Automatic calculations ensure accuracy, and online data storage allows all-time accessibility and keeps your records safe.
4. Get experts
Bookkeepers and accountants in the UK can help you keep accurate financial records from the beginning. These experts assist you in tracking, recording, managing, and updating financial data on the sheet, offering other critical accounting services.
However, if you want to save money on hiring in-house professionals and paying them a salary with employee benefits, outsource your accounting needs to third-party companies.
Now that you understand the importance of keeping accurate financial records and how to keep them, you must adopt the practice for a better tomorrow! It is unnecessary to hire professionals or outsource when you know the functionalities of an accounting system and are clear with the basics.
Whatever way you choose to record transactions, ensure they are correct. Using attractive numbers that don’t match the actual business figures will impact your reputation and reduce the chances of getting funds or setting up a successful business. Every startup must make proper plans before stepping into the market.