When launching a new business, bookkeeping might not be the first thing that comes to mind. Your priority is probably finding clients and focusing on your business’ success. However, bookkeeping is foundational to the success and financial health of your startup. Having your books in order and detailed financial statements can help you make more informed decisions for your business.
So, where should you start? Read along for ten tips on bookkeeping for startups.
Do Startups Need Bookkeepers?
Bookkeeping is essential to every business’ success. However, as a startup, you may have an additional need to maintain accurate financial records. Your investors will often request you to provide the records. Plus, your chances of qualifying for a business loan will increase when you offer precise and accurate financials to your lenders.
Here is why you need to hire a bookkeeper:
Accurate and Reliable Numbers
Bookkeepers record and maintain accurate and reliable financial numbers. With these figures, it will be easier to make well-informed decisions about where to invest your money, how to acquire new clients, access financing, and grow your business.
Monitor Cash Flow
Bookkeepers have the expertise and experience to track revenue and costs and ensure that your startup doesn’t face any cash-flow problems. They can also discover ways of reducing your business expenses.
Bookkeepers work alongside accountants to ensure that all your financial records are ready for tax season.
It’s advisable to consider a second opinion before making major business decisions, especially for new business owners, your bookkeeping team comes in handy when you need professional advice.
Save Time for Other Essential Duties
Tasks like financial monitoring and account reconciliation can consume a lot of hours that you can otherwise spend on growing a successful startup. Therefore, it would be best to let professionals handle these tasks.
It’s also essential to maintain a healthy work-life balance.
Top 10 Bookkeeping Tips for Startups
As a business founder, you must learn to incorporate bookkeeping into your startup. Early-stage financial reporting will save your business unnecessary expenses, set you up for tax benefits and ensure that you make informed investment decisions, among other benefits to your bottom line. Below are essential bookkeeping tips for startups:
1. Select an Accounting Method for Your Business
There are two possible accounting methods; cash and accrual basis accounting.
Accrual Basis Accounting
This method involves recording revenue earned before you receive payments for the services or goods sold and recording expenses incurred before you pay for them.
For example, if you sign a contract with a new client, you will highlight the money earned in your accounting books regardless of whether you have received payments.
While this method is a bit complex, it helps you track your business income and expenses more accurately, this is particularly beneficial when making scaling decisions and updating your investors.
Cash Basis Accounting
This simple method involves recording income when you receive the money and expenses when you make the actual payments.
2. Stay on Top of Your Financial Records
What type of records do you need to keep? Everything. Follow up on all documents that show your business revenue, credits, deductions and expenses. These documents include invoices, receipts, bills, proof of payment, bank statements, and all other relevant records.
3. Use a Bookkeeping Software
Automating your bookkeeping process with software can be a lifesaver for startups. It eliminates manual calculations and spreadsheets and saves you time for other essential business tasks.
Ensure that you choose software that works with your accounting method and suits all your business needs. Also, consider factors like security, storage and accessibility.
4. Outsource Your Bookkeeping
While accounting software may streamline the bookkeeping process and make things easier, it’s still necessary to work with a professional bookkeeper.
Outsourcing offers various benefits, including saving time and ensuring that you maintain up to date and organised financial records.
Most bookkeeping service providers like Visory will integrate with your bookkeeping software so that all entries are added automatically.
5. Identify the Most Important Financial Metrics and Key Performance Indicators (KPIs)
Financial KPIs are metrics that you can use to measure your business profits, expenses and revenue, among other financial outcomes. With this accounting data, it will be easier to analyse the financial health of your business. They include net profit margin, gross profit, margin, current ratio, quick ratio, accounts receivables, inventory turnover, return on equity, earnings per share, price to earnings ratio and much more.
Identify metrics and KPIs relevant to your startup and include them in your accounting books.
6. Use a Payroll System That Works With Your Accounting Software
The main goal of using accounting software is to reduce the amount of work needed. A payroll system should offer similar benefits; save your time and let you focus on growing your business. Therefore, you should choose a payroll system that integrates with your accounting software for streamlined payroll processing.
7. Maintain Current and Accurate Cash Flow Statements
Tracking the flow of cash and cash equivalents into and out of your business is essential. Therefore, it would be best to keep accurate and updated cash flow statements to analyse how your business generates income, funds expenses and pays debts.
The three major types of cash flows that you should include in your books include:
- Cash flow from financing activities
- Cash flow for investing activities
- Cash flow for operating activities
8. Make Accepting Payments Easier With a Payment Collection System
Nothing will make your work easier and enhance business success more than establishing a payment collection system. This system will manage your accounts receivable billing and collect money from your customers.
For an efficient process, first, establish payment methods like cheques, online payment methods, cash, credit, and debit cards, then set rules for accepting and handling the payments.
Setting up a payment collection system can help your business maintain a healthy cash flow.
9. Minimise Discrepancies With Regular Bank Reconciliation
Bank account reconciliation is an integral part of bookkeeping. Ensure all your records balance; the amount of money you withdraw from your business account should equal the amount spent.
Regular bank reconciliation is critical, especially for funded businesses. Your current and potential investors expect accurate accounting and financials.
10. Establish an Expense Policy
As an early-stage business, you need to track and manage your expenses. Without a clear expense policy, your team members may spend money without considering factors like acceptable expenses, budget and expense limits.
Establishing an expense policy for your startup is vital in giving guidelines on using business money appropriately. As a result, you will eliminate unnecessary spending and create a positive culture.
It’s tempting to let bookkeeping take a backseat when growing your new business. However, if you want to run a profitable business, you must keep your financial records on top of your priorities. Follow the bookkeeping tips for startups above to avoid tax and cash flow issues and increase your chances for growth.