Accounting for Startups: What You Need to Know

An accountant, an attorney, a designer, a chef, a baker, or a skillful woodworker are all examples of startup business entrepreneurs. What they aren't usually is a seasoned bookkeeper or accountant. However, whether you're a startup or an established company, keeping track of your financial activities is an important element of being a business owner.

Because you're probably running your new business on a shoestring budget, startup accounting is especially critical. Even if you're fortunate enough to have millions invested in your company, your investors will want to know where their money is going.

Why is accounting important for startups?

Congratulations on launching your own company. Your first goal as a business owner is to sell your products and services. But, if you don't keep track of your customers' payments, how would you know when they pay you?

If you don't keep track of your costs, you won't be able to collect tax deductions at the end of the year. Will a phone call from the bank be the first sign that your account has gone into overdraft? That is why, especially for startups, bookkeeping and accounting are critical.

• Establish your company's structure.
• Create a second company bank account.
• Choose an accounting software programme that you are familiar with.
• Create a bookkeeping system for your company.

Once you've completed these steps, you'll be able to manage financial transactions for your small business.

10 accounting basics every startup needs to track

While a manual accounting system can be used to manage your business accounting, you will be far better served by employing accounting software.

The majority of today's entry-level software are built for people like you: business owners with just rudimentary knowledge of bookkeeping and accounting. They're also made to make keeping track of financial transactions simple, and the majority of them are reasonably priced to fit even the slightest budget.

If you're not sure whether something needs to be tracked, take the safe route and assume it does. The following financial items must be carefully managed in all circumstances.

Bank statements

Bulky bank statements are a thing of the past thanks to Internet banking. However, it is still necessary to reconcile your bank account. Reconciling your statements each month allows you to reconcile your general ledger balance to your bank balance, account for any bank fees, and identify any potential banking problems that might otherwise go unreported if the statements were not reconciled on a monthly basis.

Credit card statements

Reconciling your credit card statements is just as crucial as reconciling your bank accounts. Credit card fraud is real, and it can sneak up on you by putting through a series of modest charges to test if you're paying attention. Make sure you have a copy of your credit card statement for each charge. If you have a company credit card that is used by numerous employees, this is very crucial.

Payroll

You don't have to bother about payroll if you don't have any employees yet. If you have even one person, however, you'll need to keep track of payroll. Everything from keeping employee personnel records to keeping employee time records falls within this category. This implies you'll have to keep track of any connected payroll documents, such as 941s, W-2s, and 1099s.

Invoices

Making an invoice is one of the first skills you should acquire. After all, how long will you be in business if you don't charge your clients for the goods and services you provide?

Any accounting software you buy will have an invoicing component, which means you'll be able to track your accounts receivables as well. If you want to get paid, make sure you're invoicing and following up on your invoices on a regular basis.

Proof of payment

Your supplier calls to inform you that unless you pay your debt, they will not be able to ship any supplies to you. The issue is that you sent them a cheque three weeks ago. While you may no longer maintain actual checks, keep your bank statements on hand to see if a check has cleared and, if so, request a copy of the check to provide to your supplier.

If you don't use checks, preserve proof of payment with your bill in case the payment goes missing.

Startup costs

If your company is fresh new, keep track of all of your beginning costs since the IRS says you may be able to deduct up to $5,000 in starting and organizational expenditures in the year your company starts up. Any costs that exceed the deduction must be amortized.

Payments received

It's always a reason to rejoice when a consumer pays you. Ensure that all payments received from your consumers, whether by cheque, cash, credit card, PayPal, or ACH transfer, are properly tracked. A record of a customer's payment should be attached to their invoice and filed once they pay. Simply save a record of the payment to their file if you're ahead of the game and use a paperless workplace.

Bills

You must develop good credit with your vendors right away as a startup firm. This entails paying all of your expenses on time. However, double-check each bill that arrives to ensure that it is correct. Paying a wrong bill is easier than you might believe, so don't make the mistake.

After you've entered your bills into accounts payable, keep track of them on a weekly basis to ensure they're paid on time. If they aren't, you'll very certainly be charged late fees, interest, or both.

Tax returns

If you're a startup company, you probably don't have any tax returns yet. However, once you've done so, you must submit your returns and retain them for at least three years, though it's a good idea to retain them longer.

Statements of Income

Depending on your firm, you should print a set of financial statements monthly or quarterly. Running financial statements with accounting software takes less than a minute, but the specifics in those reports can reveal a lot about your company.

If you keep month-end closing financial statements, your bank reconciliation should be included to ensure that your general ledger balance and bank balance are identical.