What Affordable Accounting Services Are Start-Ups Using 4 Jan 2023
Starting accounting for startups could be a daunting task. Additionally, you probably don’t have time as a founder to worry about paying bills or keeping the finances balanced. It’s still important to have a basic understanding of accounting principles, though.
Is it really worthwhile for startups to put the effort into good accounting? High-growth firms require access to reliable financial documents, especially those that want to obtain venture money. Not only are they essential for running a well-functioning business, but firms with strong accounting for startup systems, procedures, and data also reduce the risk of VC investigative work and improve the odds of surviving an audit by the IRS.
You may learn more about why it’s important to prioritize your company’s finances and how to achieve it from our blog on bookkeeping advice and accounting services for startups.
First, why is good accounting for start-ups is Crucial?
Because you need to develop an accounting system, which includes bookkeeping, to be able to keep financial transactions structured as this aspect of your business gets more complicated, accounting for startups is particularly crucial for maintaining correct financial records.
Even in the first stages of the business, accounting is crucial. You should start considering accounting once you’ve developed your concept, created your company’s structure, and worked out your fundamental logistics. Since money is ultimately what will make your start-up successful, how you handle your finances will have a big impact on how successful your business is.
Here are a few justifications for why start-ups should hire a professional accountant.
- Create a budget.
A start-up business is one that has just begun operations. This implies that even while you may already be operating, some of the finer elements may still need to be worked out, such as a thorough, sound financial plan for the next one to five years.
A budget should take into account expenses for things like advertising and promotion, product manufacturing and materials, inventory, and storage, as well as expenditures for employing and paying employees, running an office, buying vehicles, and other things. To assess if these anticipated expenditures will be something the firm must pay on an ongoing basis, it’s a good idea to break them down into operational, one-time, and capital expenses.
- Obtaining funding
All new businesses must raise the initial capital necessary to get off the ground. There are some expenses that you’ll likely require financing for, even if you’re starting your business from home and won’t be recruiting staff just yet. These include marketing, raw supplies for production, and inventories.
Many new company owners rely on self-funding or even borrowing money from friends and family to get their venture off the ground.
Other choices include things like investment funds and small company loans from main street banks. If your start-up has a lot of potentials, you might be able to convince a seed investor to fund it.
- Accounts for each day
Obtaining funding and really creating your product or service may seem like the top priorities while running a start-up firm.
In the early phases, you’ll be focusing on strategies to build your firm because startups are all about quick growth. However, establishing a solid accounting system from the outset is equally crucial to avoid issues later on.
In addition to offering, you simplified bookkeeping and invoicing services, a reputable accounting firm will help you manage your everyday financial administration so you can focus on growing your start-up.
- Cash flow management
The management of cash flow is an essential component of operating a successful business, yet it’s all too simple for novices to overlook this area.
Knowing when cash will arrive in your account is only one aspect of understanding cash flow. It involves making plans for spending, obligations, and income declines that may occur months or even years in the future.
Even though it’s crucial to whether your company survives or not, managing cash flow is challenging. It’s a learned skill, and it’s okay to acknowledge to yourself that you require assistance with cash flow for your start-up.
- To maintain compliance
Whether you’re preparing for future development or are just starting to create your start-up, employing a GAAP-compliant accounting system can help your company be ready to scale to any size.
Every effort matters to keep ahead of prospective audits, which are more often than companies may believe! From clearly setting controls and approval procedures to classifying and maintaining financial documents in the proper manner.
A start-up may be required to undertake a financial audit as part of a funding round, due diligence for an acquisition, or when seeking a bank loan or line of credit.
Keep reading to learn more about accounting basics and how you can implement a useful accounting system for your start-up.
Generally Accepted Accounting Principles (GAAP)
The Financial Accounting Standards Board (FASB) developed GAAP to provide uniformity in financial reporting across businesses. GAAP is a widely utilized set of rules, laws, standards, and procedures.
Private businesses are exempt from GAAP requirements. However, in order to meet the demands imposed by financial institutions, your financial reporting must adhere to GAAP if you intend to acquire venture capital or obtain a company loan.
Using the GAAP method might help your startup compare its performance to that of other companies in your sector because of its uniformity.
For companies having operations in many nations, such as Canada, Australia, the United Kingdom, and Mexico, a new framework known as International Financial Reporting Standards will be used (IFRS).
What to Keep and How Long to Keep Financial Records
You may create financial statements and tax returns, identify revenue sources, keep track of deductible costs, monitor the development of your firm, and back up the information provided on your tax returns by keeping good financial records.
Most accounting for startups requires that financial records be kept for at least three years in order to be audited.
While private businesses are free from yearly audits, there are a number of circumstances in which a start-up may need to go through an audit, including when applying for a bank loan, line of credit, or other forms of funding.
Four Fundamental Accounting Procedures and Tasks
Numerous methods that gather, process, record, summarise, evaluate, and disseminate financial information are part of the accounting process.
- Upkeep of the accounting software
The final financial record for your firm will be kept in your accounting software. Every transaction must be meticulously documented and classified within the program, which sets up the data in a way that makes it possible for reliable reporting and analysis.
The majority of the data will typically be entered into your program by a bookkeeper, with your accountant ensuring correctness and completeness. However, accountants occasionally administer the software directly.
- Settling financial accounts
For your startup, bank account reconciliation is a crucial accounting function. This difficult duty requires matching the bank’s activities and balances with your recorded company transactions and balances and is typically completed once you receive your bank statement at the end of each month. This procedure enables you to detect any mistakes in the record-keeping of the bank or yourself.
- Creating financial reports
A profit and loss statement (P&L) or income statement summarises your company’s costs, earnings, cost of sales, and gross margin for a certain accounting period. The P&L is the report that prospective investors examine since it is the most typical financial statement for companies of all sizes.
A balance sheet gives a quick overview of the obligations, assets, and shareholders’ equity that a business has. This report serves as a foundation for calculating return rates and assessing capital structure.
In comparison to a P&L statement, a cash flow statement provides a considerably more thorough summary of a company’s inflow and outflow of cash and cash equivalents. A start-up’s ability to earn enough cash to settle its obligations and cover its operational costs is shown by its cash flow statement.
- Financial analysis and planning (FP&A)
One of the main factors influencing a start-up’s success is a solid business plan with accurate financial estimates. Financial planning and analysis (FP&A) examines your company’s financial statements as well as other financial and operational data, going beyond record-keeping and financial reporting in accounting.
Budgeting, forecasting, and analytics are just a few of the procedures that FP&A specialists carry out to assist you to align and analyze your financial health and business plans with your financial goals.
The following are a few of the most notable advantages of setting up accounting when your organization is just starting out:
- Optimum financial management
- Represents financial condition accurately; increases efficiency
- More probable to obtain funding from investors
- Early detection of financial risks or vulnerabilities improves prospects for financial stability
- Keep thorough documents of your financial history available.
- Observe your debts
- Business versus competitors’ comparison
Similarly to this, neglecting to establish accounting procedures from the beginning might have expensive repercussions for your firm. Neglecting your start-up’s accounting poses the following risks:
- Difficult to predict
- A lack of confidence in your financial situation
- Unable to offer precise financials to investors
- More difficulty in obtaining finance
- A little financial history to draw upon
- Increased chance of financial data being erroneous
- Possibilities of problems with the IRS and other reporting organizations
It is often advised that organizations make accounting a priority right away for these and other reasons. Having said that, accounting doesn’t have to be a difficult procedure.
A lot of start-up owners do their own accounting
Startups frequently have relatively little initial funding. Sadly, this frequently results in the firm owner holding down numerous positions, such as an accountant or financial director. If you are familiar with accounting processes and have a grasp of money, that is completely OK, but it might not be something you want to pursue in the long run.
Factors in support of small business outsourcing accounting
Utilizing an accountant’s skills is one reason you might wish to outsource your accounting or hire one. You’re probably focused on expanding your company as a business owner. There isn’t time for you to study accounting.
For a range of reasons, it is important to have someone with accounting experience.
- You can clearly examine your revenue and spending thanks to accounting. You may view the details of your purchases, including their timing.
- You can get a sense of your cash flow from it. You can observe when the majority of your monthly revenue is received and when the majority of your outgoing costs are incurred.
- By examining your previous income and spending, you may predict the financial changes in your company. Due to the fact that lenders frequently want to know how your firm is doing financially, this might be helpful when asking for a loan.
- You could see places where you’re overspending or where you might restrict the budget a little.
- You may monitor information about your business taxes throughout the year with the use of accounting tools & processes, making it simpler to compile that data when it’s time to file.
6 Bookkeeping Advice for Startup Business
There are a few important tips to remember when it comes to bookkeeping for startups:
- If you don’t keep track of transactions as they happen, you leave potential for error and will need to spend a lot of time catching up on bookkeeping.
- Always budget for important costs in advance. You ought to open a company savings account, if at all feasible.
- No matter how tiny or inconsequential an expense may appear, keep track of it.
- Never let bills go unpaid for a lengthy period of time.
- If possible, automate accounting.
- Give the accounting for your start-up to a third party.
It’s Crucial to Have Good Accounting
The success of your start-up and the accomplishment of its objectives depends on good accounting practices. Simply said, organizations need to understand their accounting procedures in order to prosper. Keeping your bookkeeping organized will make your company more productive and effective, which will eventually increase your bottom line.
Solution for Start-ups
Start-ups encounter a particular set of difficulties. The fact that a start-up in its early phases has different needs than one that is more established only serves to exacerbate those difficulties.
Velan can assist you in identifying and carrying out the required measures for developing a strong, financial infrastructure, regardless of where your company stands on this spectrum. Our team of professionals comprises successful business owners with first-hand knowledge of how to handle the myriad difficulties that new businesses encounter.
We provide financial services that may be tailored to meet the particular requirements of your start-up. Our accounting for startups and bookkeeping services are adaptable, allowing you to make use of this knowledge as needed and reduce your reliance on it as soon as it is no longer necessary.