Time is a precious commodity for small business entrepreneurs. In addition to managing every aspect of their company’s operations, they are experts in the products and services their company provides, managing everything from sales and marketing to staff scheduling and benefits. Along the journey as you strive to expand your firm, there are obstacles at every turn of accounting for startups.
Do you realize that 90% of new businesses fail? Unsuccessful financial and accounting management accounts for a staggering 18% of their failures. Due to their small financial means, accounting for startups is a crucial one, and must manage their money carefully. Even if you have a fantastic company strategy, you still won’t succeed in the cutthroat job market if you don’t handle your money wisely.
Starting a business may be a laborious process. 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.
To help you with many of these, such as making sure you don’t pay excessive taxes, giving you more time to concentrate on sales and marketing, and enabling you to create complete financial reports for investors, consider using an outsourced accounting firm.
What Is Accounting for Startups?
Accounting for startups entails keeping track of cash inflows and expenditures and compiling this information into financial statements that can then be used to evaluate the performance of the company.
Do not mix bookkeeping with accounting at this time. The actual process of keeping track of all of your business transactions is called bookkeeping. In contrast to accounting, which concentrates more on the in-depth financial analysis of the firm, it doesn’t need a lot of analytical effort.
- As the founder of a startup, you’ll often have to deal with the following financial activities:
- Keep books every day. This entails activities like processing payments, keeping a log, producing financial reports, etc.
- Creating and mailing client invoices.
- Ensuring that clients are sending payments on schedule by checking payables and receivables.
- Ensuring that the cash flow can cover impending costs.
- Determining tax obligations and filing tax returns.
Each of the aforementioned duties involves a substantial amount of paperwork. The aforementioned might be tracked and recorded manually (on spreadsheets and physical files) or automatically using accounting software.
However, we do not advise using the manual approach. Except for extremely small businesses, the accounting process is lengthy and complex, making it inconvenient to write everything down by hand or type it. It may be tiresome and time-consuming, and there’s a lot of potential for accounting mistakes.
In order to automate the majority of the accounting cycle phases, business owners typically invest in accounting software.
Why is an accountant important to a business?
Accountants take into account the whole plan required to maintain and expand your firm. They may respond to your inquiries on cash flow, depreciation, financial reports, and other topics.
They may offer guidance on how to save money on taxes, including when to make capital purchases, what you can deduct, and how to lower capital gains taxes.
They can help you stay compliant, avoiding missed deadlines and noncompliance fines, and they can spot possibilities to increase profit margin and business development.
Hiring an outsourced accountant or outsourced accounting service like Velan can free up your time and give you insights and tips on how to improve your cash flow, strategically prepare for your taxes, and focus on what you do best when you want to expand your business but lack the time or resources to do so.
The Best Ways to Streamline Accounting for Your Startup
Select a Business Entity
Choosing the company structure you want to utilize is one of the first stages of starting a startup. This choice will impact your financial obligations, taxes, and other factors. Great if you’ve already chosen your company’s legal structure! In case you haven’t heard, there are five primary varieties available. To assist you in selecting which is best for your startup, below is a table of their advantages and disadvantages:
Parameters: Sole Proprietorship
- Easy to manage
- Easy to manage to Receive all profits
- Simple to set up
- The owner suffers all losses
- Taxed on all your revenue
General Partnership Advantages:
- Easy to set up and manage
- Less financial liability than the sole proprietorship
- Consultation between partners
- Unlimited financial liability
- Possible internal conflicts
- Taxed on all your revenue
Limited Liability Company Advantages:
- Liability protection Short setup process Members can choose the method of taxation
- More expensive state renewal and compliance fees.
- Difficult for investors to contribute.
Establish a Business Bank Account
You need to register a business bank account once you’ve decided what kind of company entity your firm will be. This makes sure that your personal funds are kept separate from the funding for your companies.
Clients will see you as more professional, and the procedure of paying taxes will be made simpler.
Select an accounting system.
Depending on how well you manage your funds, your company may flourish or fail in the marketplace. But let’s face it—running a business is challenging enough as it is, and accounting can be a tiresome process.
Therefore, it is preferable to simplify your bookkeeping using a useful and user-friendly system.
Maintain a Record of All Your Expenses
Knowing what counts as a cost is the first step in keeping track of every expenditure. Some of the most typical company expenditures are listed below:
- Wages or salaries made to employees
- Training program fees
- Equipment and supply purchases
- Insurance fee
- Interest payments
- Maintenance costs
- Software license purchases
Here are some suggestions for properly tracking expenses now that you are aware of what constitutes an expense:
- When manually recording, keep each receipt in a binder or file folder that is well-organized.
- Just save digital copies of your receipts if you use the software.
- Although the IRS states that receipts under seventy-five dollars do not need to be tracked, it is advisable to save all receipts.
List of outsourcing companies that provide accounting for Startups:
Will you have enough time to take care of the accounting issues for your startup, or would you prefer to focus on the core aspects of your business goals by hiring outside help for these accounting tasks?
Scalable Outsourced Accounting:
The majority of businesses desire to fast expand and flourish, yet many lack the infrastructure or resources to do so. Small businesses may access resources used by major corporations through accounting outsourcing, which enables them to grow more quickly.
Let’s say you have an internal accountant and your company is expanding quickly. Would the expansion be manageable for your internal team? If your internal staff is unable to handle the development, you will have to go through a drawn-out hiring procedure with no assurance that a suitable applicant will be found.
You may have as many accountants available to you as your scaling team needs by outsourcing your accounting staff. Additionally, it assumes that you have the infrastructure required to support your scaling efforts.
Increase your knowledge and focus on the primary objective.
Focusing on their primary business will always be necessary for entrepreneurs. You will save a tonne of time by outsourcing startup accounting services to a reliable group of outsourced accountants, which is unquestionably necessary for an entrepreneur starting out.
Above all, you may focus your abilities and competence more on the accounting for startup’s strategic goals and operational efficiency features. Similarly to this, you may increase your company’s income and growth rather than burdening yourself with the bookkeeping and accounting issues that come with starting out.
You might obtain help from the bookkeeping and controller service in calculating your burn rate.
The phrase “burnout” is used to describe an excessive expenditure pace. Do you know what your business’ burn rate is? This is, in essence, the amount of money you are spending and the length of time you will be able to be in business if you keep spending at that level. This is crucial information to understand, especially if you own a tech startup or similar early-stage business with a protracted wait until you begin making money from sales. To increase their revenue scale, startups must determine their burnout rate. Startups can only receive assistance from one capable accountant in identifying their burnout spots.
You Can Get Finance with the Aid of Outsourced Accountants.
Outsourced accountants are aware of the particular financial difficulties that each sector of business and industry faces. They are aware of where to get reliable financial records and reports, and they create financial presentations and documentation that pique the interest of lenders and investors.
Lenders and investors seek thorough financial reporting that is simple to understand and provides all the relevant data they want to make an informed choice. The advantage of external financial services over internal accountants is their breadth of business sector expertise. Because of their experience, they can provide fair counsel to businesses in any sector.
Outsourced accountants relieve management of pressure.
The ability to assign duties is a crucial trait for business owners or entrepreneurs. Owners of businesses must manage their time wisely. Every second they are on the job need to increase the company’s revenue. They are unable to concentrate on abstract concerns or other high-level activities while they are trying to resolve accounting problems.
Outsourced accountants assist business owners in avoiding concentrating on common problems that may be resolved by regular methods. Business owners shouldn’t take pride in doing tedious back-office work. In fact, it may destroy the company. “Busy is the new dumb,” as Warren Buffet once said.
The Top 10 Accounting Advice for New Startups:
- Learn the laws that are relevant to your line of work, notably the tax laws. If they are not followed appropriately, the startup risk suffering serious consequences.
- To ensure you have enough time to complete the tax returns, set reminders for the due dates.
- Keep your personal and professional costs separate. Instead of utilizing a personal one, open a company checking account and a business card.
- To automate the process, get cloud-based accounting software.
- Create and follow a budget to track where your money is going.
- Establish financial objectives and monitor your progress toward them on a regular basis.
- All of your receipts and invoices should be saved and retained. including the $75 and under ones! Maintaining copies of transactions makes it simpler to balance your finances.
- Use just the funds from your company checking account to cover business costs. It will be listed as an owner’s withdrawal in your accounting.
- Make a separate folder to hold any startup legal contracts and financial data (such as contracts, receipts, and invoices).
- Acquire a TIN (taxpayer identification number). When requested for verification, you won’t need to provide your Social Security Number if you have one.
From the beginning, the business system has been efficient and well-organized.
It will be easier to maintain a well-organized and efficient company system during the course of the business if startup accounting services are outsourced from the beginning. Companies may also provide shared CFO services for new businesses, which can greatly benefit your company.
Hire an accounting team to simplify the day
Accounting and financial records that are current can help business owners determine if startups are financially viable. As a consequence, the generated reports, budgets, forecasts, and statements can assist owners in making timely decisions and speed up business growth. Therefore, Velan thinks you must have heard the response to the initial inquiry.
- Your accounting team being outsourced may appear worrisome.
- However, it’s a sensible choice if you’re looking to scale and expand your organization.
- Accounting may be outsourced so that business owners can concentrate on their overall business operations and the big picture: their bottom line.
- Accounting for startups is highly analytical and mechanized.
Focusing on the crucial aspects of your business while an adept accountant handles your books is crucial. For clients who want to outsource their accounting responsibilities, there are important benefits. Cost-effectiveness comes first, followed by flexibility in terms of contracts or reducing the number of functions.
With clients from all around the world, Velan is a trustworthy accounting service supplier to small and medium-sized businesses.