Accounting is an important part of any business, but accounting for startups is simply indispensable. However, some entrepreneurs put off accounting for a later date thinking that there has to be some sales to account for first.
Though it’s easy to get caught up in the glitzy tasks that come with starting up, accounting is the meter with which one can gauge how the business is going.
Ignoring the financial side of business is the sure-fire way for things to go downhill. Without a clear idea on your margins and cash flow, you might not even realize that you’re operating at a loss. Consider learning basic accounting as taking responsibility of entrepreneurship.
Two basic accounting methodsThere are two basic accounting methods for your business: the cash basis and the accrual basis. The accrual basis works on a record-per-occurrence basis: income and expenses are taken note of as they occur, regardless of whether or not cash has actually changed hands. The moment an invoice is generated—regardless of whether the cash is actually collected—the sale enters the records. The accrual method is required for corporations, and whose annual sales exceed $5 million.
Startups, cash-based businesses and small service companies, however, would do well to consider learning the cash accounting method.
The cash method is simpler: the records match only the actual flow of cash in and out of the business. Income is recorded when it’s on hand, and expenses are taken note of when they are actually paid. This set-up would work better for sole proprietors and businesses with no existing inventory yet.
Accounting 101 for Startups
Now that we have discussed the importance of accounting for startups, you’re probably thinking of where to start. There are some basic accounting disciplines you would do well to learn and practice.
1. Have a record of all your assets. Take note of everything your company owns. From cars and computers to furniture and plants—make a listing complete with the model number, registration number, warrantee period, service center, and date of purchase. Start from the moment you acquire them, so it would be easier to update.
- Write a cashbook. Take note of both the physical cash in the box, and the signoff. You may keep a basic excel with a balance column formula, or create multiple excels when you are dealing with different petty cash sources coming from different people from different locations.
3. Keep a detailed list of your expenses. Keep original copies of bills in a file. Avoid bills without tax registrations. You may also ask this to yourself: what if you do not have the capability to do your own business accounting? Well, you could always dip a toe into cloud accounting – and you can keep a very detailed and updated list of your expenses and access them anywhere and anytime.
Small Business Accounting Service—Yes or No
When it comes to accounting, the services provided by an accountant are indispensable. As a start-up entrepreneur, you have two options when it comes to this: hire an in-house accountant, or an online business accounting service. Check out our next blog for information regarding the topic.
Need help with your company bookkeeping and accounting? Check out D&V's financial services.