You turned a great business idea into a startup business. Apart from growing your company, your focus should also be on following laws and regulations. You want to do everything by the book, indicating you’ll also need to do accounting for startups.
Unless you are a financial expert, keeping your accounts in order might be complicated. And even if it isn’t, it’s still a hassle. But before you decide on whether you need an expert, here’s what you should know about startup accounting.
The Importance of Accounting for New Businesses
It takes courage to establish a new business, and you should be proud of that move. However, you’ll need time and effort to organize everything. That also includes taking care of finances, and accounting is vital in that department. Accounting helps you to keep track of user payments, and financial projections for startups apply for tax deductions, and ensure your finances are in order.
The first step is choosing your preferred business structure. Your company will need an independent bank account, and it’s necessary to define a bookkeeping system.
Why Your Startup Could Benefit from a Professional Accountant
During the initial stage, you can only stick to bookkeeping. That involves tracking payments, invoices, and other transactions. Once you are ready for an accountant, they’ll take the entire financial management to the next level. Their services include financial reports, forecasts, and statements.
The good news is that new businesses don’t have to employ an accountant. Instead, you can rely on professionals providing startup accounting services. Here are the benefits of choosing this option:
- Compliance with relevant regulations. Businesses need to pay taxes applicable to their company. If you miss deadlines, you risk huge fines. An accountant will ensure that you are aware of all financial obligations to authorities and third parties.
- Keeping everything neat. Your financial and legal documents should be accurate and neatly organized. If you ever need specific information or file, the accountant should be able to provide it quickly.
- Answering investors’ questions. For startups, it could be crucial to raise capital and attract investors. But investors will usually do their due diligence before investing in your company. They’ll probably hire a team of experts to analyze the situation and ask questions about your finances. An accountant is vital to answer those questions.
- Applying for tax returns and credit. Your accountant can help complete tax returns and ask for a development tax credit. The documentation process is complex, and a professional could be significant in this area.
- Building financial models and providing valuable information. Essential data could include dates to pay taxes, cash-out dates, etc. Also, an accountant can help develop financial models and forecast the company’s finances to secure smart business decisions.
What Accounting Basics Should a Startup Track?
The best advice possible is to be as detailed as possible. If you are thinking about whether you need to track a certain thing, the answer is probably yes. Those who find it too demanding could always count on professional accounting for startups. Here is an overview of the items that an accountant will help you manage.
Bank and Credit Card Statements
Technology has made tracking bank statements easier. Online banking simplifies this process, but you still need to monitor your accounts. Tracking bank statements can ensure you have detailed information on how your balance changes over time. You’ll also be aware of banking fees, and the monitoring process makes it easier to identify errors made by the bank.
If you have credit cards, the rule of monitoring also applies to those statements. This could be vital if you have cards multiple staff members use.
Payrolls
You might be the only employee in your startup, but that won’t be the case forever. Once you have more employees, tracking payroll becomes essential. This could be complicated since it involves staff records, completing forms like 941s and 1099s, and ensuring you handle all the paperwork in time. Managing payrolls is an essential service offered by professional accountants.
Invoices
Your business sells products and services, which involves issuing invoices for those goods. It’s an imperative part of any business, and each sale can be crucial for a startup. Therefore, it’s critical to release proper invoices to your clients and startup financial projections for business.
Accounting software can help with issuing invoices. But an accountant can help to manage invoices and follow up on whether the customers pay them.
Ironing Out Potential Payment Issues
Here’s an example – you ordered some material to make organic cosmetics that you sell. You paid regularly a couple of weeks ago, but the supplier informs you that you are in debt. This is where turning to your accountant can help. They can check if the bank cleared the check that you sent and if the paid amount was deducted from your account. These proofs of payments assist in ironing out financial issues you have with other companies and parties.
Other Accounting Basics Startups Should Track
You can go in as much detail as you want, but here are some other essentials to cover:
- Company costs. Tracking all expenses could even qualify you for some deducts for organizational expenses.
- Tax returns. It will take time to qualify for this as a startup. However, once the time comes, it’s essential to be prepared and handle the paperwork properly.
- Tracking received payments. An accountant will help monitor payments, as well as their types. Did customers pay more via PayPal, credit cards, or cash? This could be interesting info to know where to focus your strategy.
- Bills. Apart from receiving payments, you need to pay bills on time. An accountant will check to confirm all bills are valid and error-free.
Final Thoughts – What Should Startups Use for Accounting?
The initial business stages usually don’t involve complex accounting tasks. Some owners go with a manual accounting system and do the job themselves. Using specialized software solutions could simplify things, but it requires feeling comfortable working with computers.
The smartest option to go with is to hire professional accounting services. These will ensure you do everything by the book and focus on running the actual business. That sets you on the right path to reach business goals and take the company forward!
