Startups: 4 Accounting Tips
Having a solid financial basis is crucial if you want your firm to expand. Incomplete financial data might mean you're leaving money on the table if your startup's accounting practices aren't up to snuff.
Many company's books aren't accurate or GAAP-compliant due to the following four reasons:
The four accounting suggestions provided here are designed to help startups and small companies avoid these problems and get their financial house in order so they can support the company's growth.
- Using Excel spreadsheets to keep tabs on money coming in and going out
- Because they messed up the accounting setup.
- Accounting in terms of cash flow
- Involving a non-specialist accountant in your business is like
1. Do not use spreadsheets; instead, begin utilizing accounting software immediately to keep track of your income and expenditures.
In the early days of operation, most firms rely on spreadsheet programs like Microsoft Excel to keep track of their financial transactions. However, this method of accounting is rife with opportunities for human error due to the extensive amount of data entering it needs.
If you want to save time and money, you should use the accounting software solutions that work best for your company as soon as feasible.
The time spent on tedious manual tasks is minimized, and you can quickly and easily generate polished financial statements and reports with the help of financial software that automatically gathers the necessary data from your bank and credit card accounts.
2. Your chart of accounts is crucial; you should spend some time putting it up correctly.
Unfortunately, many organizations' chart of accounts isn't put up properly. Some young businesses, for instance, create a chart of accounts for every new spending, which may quickly become unwieldy and disorganized. Having financials that aren't GAAP-compliant or requiring weeks to generate the necessary reports gives the appearance that your corporate side isn't in order to board members or investors if your chart of accounts isn't constructed properly.
Do you use account numbers to keep track of your chart of accounts? Do you use departments and classes to organize your financial data? Unless that's the case, your chart of accounts probably needs some work. Having a professional finance company on board is the simplest way to guarantee a smooth launch; they can create a bespoke chart of accounts that can grow with your company, allowing you to provide standardized, GAAP-compliant financials whenever needed.
3. An accrual method of accounting should be used instead of a cash system for keeping track of money coming in and going out.
Cash basis and accrual basis accounting are the two primary approaches to financial reporting. Expenses and revenues are recorded on a cash basis if an organization uses that method of accounting, and on an accrual basis if the money is earned or owed before the cash is spent.
My recommendation for new firms is to adopt the accrual basis of accounting rather than the cash basis, which is the more common starting point for many organizations. More informed business choices may be made with the help of accrual accounting since it provides a more complete picture of the company's financial health. Financial statements prepared using the accrual approach are the standard for board reports and investor updates. Because the Internal Revenue Service mandates that all organizations with yearly revenues of more than $5 million use accrual accounting, it's in your best interest to begin utilizing this system as soon as possible, even if you don't expect to generate that much money for a while.
4. Not all accountants will be able to meet your company's demands. It is best to get an accountant who specializes in your field.
The popular belief that any certified public accountant can manage your company's financials is false. In reality, your accountant won't have a firm grasp on the particulars of your industry's accounting standards and regulations if they aren't already aware with it. If you don't have access to expert accounting advice, your company might be failing to capitalize on tax deductions or incurring unnecessary expenses due to using out-of-date benchmarks. It's important to choose an accountant or financial company that has expertise with your industry, a clientele consisting of other firms like yours, and familiarity with the software you use.
These four accounting suggestions for small business owners and startup founders can help you establish a firm basis for your financial procedures, while your particular requirements may vary depending on your company's revenue model and stage of development.