The Founder's Guide to Accounting for Startups

You've accomplished your goal of creating a minimum viable product that you're proud of. You've been working on your pitch deck late at night. You probably aren't lying awake at night wondering if your books are in order. ” Accounting and bookkeeping aren't as critical as, for example, locating a technical cofounder or determining your capital runway. But it doesn't negate the fact that it's essential to your company's survival. Plus, how would you figure out your cash runway or budget for another payment if you didn't have accounting?

Accounting vs. bookkeeping 

While both are concerned with numbers, bookkeeping and accounting are not the same. The process of keeping track of all financial information, namely income and expenses, is known as bookkeeping. The word comes from the days when business owners kept track of their money in paper books.

Accounting is the act of analyzing and evaluating your financial records for a variety of purposes, ranging from ensuring that you pay the correct amount of taxes to make strategic business decisions based on your company's data.

Both bookkeeping and accounting are critical to a company's success, but as a startup, you may have an even greater need to keep accurate records. Financial reports will be required of you if you have investors. If you're looking for a business loan, you'll need financials that are both transparent and easy to understand so that potential investors can make an informed decision about investing in your idea.

Choose an accounting system 

Before you file your first business tax return, you'll need to decide between two options.

1. Cash basis accounting

The most basic kind of accounting, and tracks income and costs as they are received and paid.

2. Accounting on an accrual basis 

Counts money when it is "earned" rather than "received" (and the same with expenses). So, if a customer signs a large contract, even though they haven't paid you yet, you'd consider the money earned. This strategy is more difficult, but it allows you to track a more accurate long-term picture of the firm, which is very valuable when reporting to investors or making quick scaling choices.

What kind of financial records should a new business keep?

So you've decided on a legal entity and accounting method, and your company is running smoothly. What kinds of financial records do you need to keep track of in the first place?

The short answer is that everything.

Longer answer: Keep track of all documentation that supports your tax returns' revenue, expenses, deductions, and credits. 

  • Receipts.
  • Statements from your bank and credit cards, as well as bills.
  • Checks were canceled.
  • Invoices.
  • Payment receipts.
  • Bench or your bookkeeper can provide you with financial statements.
  • Tax returns from the past.
  • Forms W2 and 1099
  • Any other documentation that backs up a claim of income, deduction, or credit on your tax return.

Also, don't keep these items until you've sent in your tax forms to the tax collector. Most records should be kept for at least three years, while there are several instances where you may want to maintain your company's financial records for longer.

Accountants in Croydon help small businesses & startups with their accounting and taxation matters, bookkeeping to keep their business running perfectly.


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