As an entrepreneur and founder of a startup, it’s easy to get caught up in the passion of your business idea and product development. However, you just cannot afford to overlook your accounting which is a critical part of your bookkeeping and finances. Proper accounting not only keeps your startup compliant but also provides essential insights into the financial health and growth of your company.
Don’t let accounting intimidate you. With some simple strategies and the right tools, you can effectively manage your startup’s finances, even if you don’t have an accounting background. Here are some tips for simplifying your accounting and setting your new business up for success.
Separate personal and business finances
No matter how small your startup is, it’s important that you never combine personal and business funds. All income and expenses related to your business should flow through your business bank and credit card accounts.
On the other hand, you can make payments for any initial investments or loans you make to the business from your personal accounts. This can help establish clear shareholder equity on your books.
Dedicate time each week to collect and organize all receipts and financial transactions in one place. This makes tax time and creating financial statements much simpler.
Consider outsourcing your bookkeeping
If you don’t have an accounting background, hiring a part-time bookkeeper or CPA firm can be worth the expense, especially in the startup’s early days. Look for an experienced expert who is familiar with small business finances and cash flow management for startups in your industry.
A good bookkeeper will manage every part of your accounting process including reconciling accounts, sending and tracking invoices, and handling payroll and tax payments. This allows you to focus on higher-level financial strategy and running your business.
Leverage technology
Let’s be real – accounting can be tedious and time-consuming. But the right technology can be a total game changer for simplifying your bookkeeping and getting helpful insights into your finances. Look for user-friendly accounting tools that hook up with your business bank accounts. This way, transactions are automatically captured and expenses are categorized for you.
Cloud-based programs are ideal since you can access your books from anywhere, anytime. And if you have a distributed team, everyone can collaborate in the system.
Manage inventory carefully
Keeping track of inventory is make-or-break for product companies. Meticulous inventory management means you’ll know exactly what you have on hand and can avoid costly write-downs if stuff becomes obsolete.
Log each inventory purchase – vendor, cost, quantity, dates, etc. Then enter every withdrawal and sale into your accounting system. Do regular physical counts to confirm your actual stock matches the books. This protects your investment in inventory.
If your accounting program doesn’t handle inventory, get a dedicated system that integrates with your books. It’ll provide detailed tracking and powerful reporting to inform purchasing decisions.
Bill clients and collect receivables
The lifeblood of any business is getting paid for products or services delivered. Having a sound accounts receivable process ensures you efficiently collect what you’re owed.
Create polished, professional invoices as soon as work is completed and get them in clients’ hands promptly. Include due dates and clearly state payment terms and options like bank transfer, credit card, online payment portals, etc.
You can also automate sending invoices and follow-up reminders from your accounting platform. Gracefully but firmly follow up with consistently late customers and maybe even offer incentives like discounts for early payment.
If clients still won’t pay, promptly reach out to establish payment plans or to discuss whether their situation necessitates adjusting the amount owed. The idea is to never let large past-due balances linger.
Simplify tax compliance
Taxes are inevitable but don’t need to be intimidating. Your accounting software likely has features that help ease tax compliance for your business. For example, you can connect your books to automate income and expense tracking required for filing taxes.
To avoid late surprises, set aside a percentage of each deposit received to cover eventual taxes. You can also work with an accountant to file quarterly estimated payments to avoid underpayment penalties. Come tax time, your accountant can handle filing business tax returns while you focus on your startup. Don’t forget to provide 1099s to contractors and W-2s to employees by January 31st each year.
Learn and improve
Don’t be discouraged if accounting doesn’t come naturally at first. Through hands-on experience managing your startup’s finances, you will gain competence over time. Strive to learn something new about small business accounting each week.
Review financial statements monthly and compare to previous periods to spot issues and opportunities. If you don’t understand a report, have your accountant explain.
Solicit feedback from your bookkeeper and accountant on areas for improvement and implement their recommendations for best practices. Increased accounting proficiency will serve your business well for years to come.
Conclusion
Don’t let accounting take a backseat during your startup’s early days. Proper financial management can help lay the groundwork for stability and success as your business grows.
Leverage the right tools and professional guidance to simplify accounting tasks. Master these vital accounting strategies to ensure your new business gets off on the right financial foot. Good luck!
