Accounting for Startups: How to Get Your Accounting Strategy in Place

To be successful, startups need to have access to the funds they need to build their business. With money in hand, they then need to manage it well. Getting the most out of every dollar is critical. It’s even more important to have a way to verify how the funds are being used if investors and other stakeholders are watching over the startup owner’s shoulder. That’s why it is critical to have solid accounting in place. What goes into accounting for startups? Consider the tools available, what’s needed, and how to get started.

The Importance of Accounting for Startups

All businesses need to have solid accounting practices. There are numerous reasons why this is essential to a startup owner. Establishing healthy accounting practices from the start may seem challenging, but it’s a solid investment in your business.

Your goal as a business owner is to sell a product or service. To know how well you are doing, you need an efficient strategy for managing payments from customers as well as what you’re spending. Some startups may be able to take tax deductions for the investments they make or may be able to expand sooner if they have confidence in their growth. Accounting enables companies to have insight into:

• If they are making money
• How much they are making (how profitable is each sale)
• How much they are spending to keep the company operational
• Where they can potentially find savings
• How to build funds to expand

To get started with accounting for startups, first determine your business structure, set up your separate business checking accounts, and ensure you are using some type of accounting service. There are various options available you could choose from, but what’s most important is to ensure you get it in place and working quickly.

It’s also important to have a bookkeeping system in place right away. This is what is going to give your business a way of tracking individual transactions on a day-to-day business. Many startups should hire an accountant to do the actual accounting work (even if you are using accounting software to support you).

What Should Your Accounting System Include?

Accounting should be a comprehensive effort – covering all aspects of spending and revenue. When it includes everything, you can be sure you’re accurately managing your books and have a clear understanding of where you stand financially. More so, it will help you later at tax time.

There are several components that are important when it comes to accounting basics for startups. Here’s where you should be focusing some of your effort:

Bank Statements

These are a big part of accuracy and transparency. You may have an accounting software program for startups that enables you to link your bank statements directly into the problem. That’s a solid investment because it streamlines efforts. No one wants to balance and reconcile statements. Still, even then, you should be personally looking at your bank statements at least one time a month to ensure everything is in line with expectations.

Credit Cards and Spending Accounts

Startups also need to factor in their spending. This is often done using a credit card account. Credit card statements need to be looked at on a monthly basis as well. This will provide insight into what you are spending money on. You’ll want to balance this against what you record in your accounting software program. Even small costs like interest are a cost of business you need to manage.

Invoices

Any time your company is paying for anything, it needs to be carefully monitored and added to your accounting software program. Invoices are paper documentation that enables you to know what you’re paying for, when, and to whom. Be sure these statements are constantly monitored for accuracy as well as any fees for late payments.

Payments Received

Accounts receivable monitors all of the money coming into your business. That includes everything from the payments you receive from your customers to the money paid for any service. You need to consider all methods of payment, too. That may include a check that is issued to you, credit card payments, payments through ACH transfer, as well as digital payments such as Venmo and PayPal. The more ways you give people to pay you, the more ways you’ll need to keep track of not just the payment but also the fees associated with using that service (those are a cost of business you need to track as well).

Accounts Payable

Accounts payable includes everything you purchase. That includes the inventory that you are purchasing to run your business. It also includes all of the payments you are making for operational costs, such as rental or mortgage payments, utilities, and even the software you’re using. Often, you can loop these costs into your accounting software very easily, enabling you to constantly have an eye on this info.

Loans and Fees

If your startup secured a loan to get your company up and running, you may be paying interest. You may be responsible for making payments back to stakeholders. You may even have stock to manage if you’ve IPOed. It’s critical to calculate all of this as a cost of doing business and to keep all of these details in line with your accounting methods. Those costs, especially interest and finance charges, as a big part of the full picture of your company’s financial health.

How to Choose Accounting Software for Startups

Knowing that it’s valuable to have accounting software I place for your business, the next question is this one. How do you choose accounting software for startup businesses? There’s a lot that goes into the process simply because there are so many companies and products out there to choose from. To get started, consider some of the types of accounting products available that may help you.

Small business payroll and accounting: 

This option in software allows you to manage both your payroll and most small business bookkeeping and accounting tasks in one case. As a small company, you may benefit from this type of software. Numerous programs are available (Sage Software, QuickBooks, and Peachtree, to name a few) that are recognized as easy to set up and affordable to use.

Business management software programs:

 this type of accounting software has more features, which include things like inventory control and managing your point of sale. You may also have more ability to track your business’s progress and growth using this tool. Some programs even have billing and purchasing tools, customer relationship management tools, and more. Some examples include Everest and NetSuite.

Free accounting programs: 

For very new companies, there may be some initial help through free accounting programs for startups. Free limits how much you can do and typically does not offer a lot of features, but they can be a good step if your company is just starting out. Perhaps the best option is QuickBooks. You can also find a wide range of smaller companies that allow you to use these tools inexpensively (just not free).

Some companies offer software that’s designed specifically for the industry you are in. There are options for tech companies, retail companies, restaurants, and so on. It can be helpful to choose one of these programs if they offer the features you need. If they don’t, or they limit what you can do with them, that specialization may not be ideal.

Key Features to Look for in Accounting Software

As always, it is critical to choose software that’s designed for your business’s needs. However, there are some important features to take into consideration. Here is a look at some of the most important features necessary for most startups.

Customized invoices: Creating customized invoices allows your business to create invoices that match the services you offer. Look at how many customized invoices you can create using the tools on the software.

Cloud-based programs: This is a valuable tool for most businesses today. Cloud-based business management is important as it enables you to manage your business anywhere you need to be, even after hours if you need to. It may also allow you to have a team that works remotely.

Tax management: Look for accounting software programs that incorporate tax aspects. Specifically, you want to ensure that the program can help you with sales tax and reporting. It should make it easy for you to track your taxes.

Expense tracking: You’ll want to watch what’s coming into your business, but also what’s going on. Expense tracking can be as intuitive as you need it to be. Some programs can alert you when costs change month to month.

Credit card payments: Ensure your software program enables you to easily manage and track credit card payments. This may make it easier for you to account for costs associated with those transactions as well.

Double-entry accounting reports: Choose a tool that allows for double-entry accounting to ensure accuracy. This may include a chart of accounts, trial balance, and general ledger fields.

Bank reconciliation: Some software programs will reconcile your banking accounts to your ledger. This helps to ensure that that your numbers match and nothing is forgotten.

Automated payables: Some of the more advanced types of accounting software can help to make payments for you. Automated features like this are becoming more common across all types of accounting. They can help you avoid costly mistakes later.

Mobile and e-commerce sales: If your business is selling online in any capacity, you may want to ensure there are mobile and e-commerce sales management tools in your accounting software. This helps to ensure your business can consistently manage all sales.

Payroll: Some accounting software products can manage your company’s payroll as a component of their operation. Do this when it makes sense for your company and only when it is truly representative of what your business needs. Sometimes having a professional payroll service instead can keep costs in line with your goals.

There are numerous other options available. Take a look at all of the features the software offers. Determine how those features can benefit your business directly. If they cannot, it may not be worth paying for those extras.

Can You Do Your Accounting Yourself?

It’s wise for startups to be cautious about spending money – no startup wants to run out of money too soon. One step to minimize costs may be to do your accounting on your own.

That may be okay when you are getting started and the business is small. This is even further easy to do when you invest in accounting software. Handling the books using a basic ledger may be too complex for most companies to do, especially when you are working to build your business. Using accounting software is one tool to make that process easier. 

You may be able to use software online if you:

• Have the time to manage accounting on your own
• Have the funds to hire someone to manage the books if you cannot do so
• Have a company that’s small enough with a simple structure

As your company grows, you’ll still benefit from having accounting software, but you’ll also likely need to invest in a professional accountant to manage the process. 

You may be ready for an accountant if you:

• Are growing quickly
• Are dealing with a significant amount of money month to month
• Have a business that’s scaling – new locations, new products, or otherwise becoming more complex
• Are having a lot of trouble investing enough time into managing the books

Considering to Outsource Your Bookkeeping and Accounting?

Another option that startups have for accounting needs is to outsource their bookkeeping and accounting in total. That means using another company to handle the entire process for you. This is a realistic option for mid-sized companies that do not want to be hands-on. However, for most startup companies, especially those with few employees, it may not be worth the investment. The key is to compare what you want and can do within your company. If you don’t have the tools necessary to manage accounting practices in your company, outsourcing those services help to ensure your business can keep up to date on your financials.

Using an Accountant Makes Sense

Your accountant is more than just a software tool. They are able to provide you with insight and support. Many times, they can also provide financial investment advice and give you insights into what you should be doing now and what you need to do later to balance your business’s financial progress.

Hire an accountant as soon as it becomes financially feasible to do. Often, they will pay for themselves by helping you to find cost-cutting measures while also ensuring your business is making the most of any funding you receive.

Value accounting for startups. It’s one of the most important investments you can make in getting your company up and on the right foot. No matter if you are starting a small eBay business or a large tech company, you need to know where your money is coming from and where it is going from Day 1. If you have not done so lately, take now to update the accounting you’re doing to manage your company.

Disclaimer: Please keep in mind that the content of this post is not intended as tax, accounting or legal advice. The information presented here is for informational and educational purposes only. Before engaging in any transaction, be sure to discuss these matters with a trained, licensed professional.

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