Accounting for Startups – Starting a business is challenging. Areas like marketing, fundraising, and product development take up most of an entrepreneur’s time in the beginning. And accounting gets left behind by most who are not numbers people. Reviewing endless financial documents can seem dreadful to them. These same entrepreneurs should know only in accounting will they receive their clearest picture about how successful or financially healthy their company is. Let’s explore the basics of business-accounting steps and see how they can help get your entrepreneurial journey started on the right foot.
Understanding The Law
The first step you need to take while trying to manage the finances of your startup is to know about the relevant laws that apply. You won’t learn how important good bookkeeping is if you don’t understand its importance. Better to be prepared before, than feel sorry during tax season.
Creating Bank Accounts
It is important to keep a track of your business’s income and expenses. The next step involves you opening a bank account and have different accounts for different expenses and incomes, like tax payments, vendor payments, receipts from payment gateways down to cash or cheque purchases. Once you register your company you can open an account with the help of a PAN card and registration certificate. Before opening an account check all features offered by various banks including fees structure. This is important while choosing the right bank for your startup.
Identification Of Basic Business Expenses
One of the most crucial steps to starting a business with a solid base is monitoring your growth and knowing the financial position at any point in time. To start, you need knowledge about your basic business expenditures. You need an organized system for keeping all records from bills to other important documents.
Identification Of Vendors
The next step involves identifying your vendors. You need to make a list, keep track of purchases and payments at regular intervals, and verify balances carefully.
Maintaining Customer Database
This is crucial when it comes to marketing your product. You need to verify your client’s purchases and tag them with the products they bought. It will help you selling different products to your existing clientele.
Identification Of a Bookkeeping System And Accounting Method
Bookkeeping involves recording your daily transactions, categorizing them under relevant heads, and reconciling banks with your accounts. The objective is to ensure all balances in the books make sense when matched up against bank statements or records from other sources like suppliers’ invoices. The three methods you can use are:
- Do It Yourself – You have the option to go DIY and use software like QuickBooks or Tally, or you could just choose Excel for simple account maintenance
- Outsource The Accounts – The outsourcing option is an attractive one, with both local and cloud-based options available
- Hire An In-House Accountant – It’s good if you can opt for an in-house accountant. They work under your roof and take care of all your accounting needs
Once you establish your system, you need to determine the basis of accounting to be followed in your business. The two methods you need to select from are:
- Cash Method – Only cash transactions get recorded. Income and expenditure are booked at the time when they are received or paid.
- Accrual Method – In the accrual method, all the transactions are recorded at the time of occurrence, irrespective of the fact, whether cash is received for the particular transaction or not
It is a known fact that over 95% of businesses use the Accrual method, as it depicts a more accurate representation of their profit and loss throughout a year.
Setting Up Of a Payroll System
As your business grows you need to hire employees, decide their rosters and salaries. You also have to take care of any tax deductions that are coming from their earnings. Paying your employees can cost around 70% of your business’s entire budget. Setting up a payroll system can save you some serious hassles in the long run.
Maintaining Of Inventory
Thefts can completely throw your bookkeeping off the tracks. You can miss on goods even if you accurately track the purchase and selling dates, prices, and current stock numbers; but managing a large inventory is not easy – especially without an inventory management software like ZapERP, that automatically does all of this for you and much more.
Tracking Of Taxes
You need to keep a track of any penalties or government compliances with regards to your business – like the Goods and Services Tax (GST). If not taken care of in time, high fines and punishments can occur, which could impact your business’s well-being.
Identification Of Future Goals
Achieving your startup’s goals at any given time is crucial for success. To do this, you need to establish short- and long-term objectives that are measurable weekly, monthly, or quarterly; without these measurements, it will be difficult to know whether the company has grown. Financial forecasting can help companies forecast growth within a quarter or even over two years by estimating expenses, as well as client decisions that require professionals’ expertise.
Any entrepreneur needs to have a strong grasp of accounting so that they can spend their time wisely on problem-solving and decision-making rather than being bogged down in the minutiae. A good accountant will be able to show you how your business stands financially by keeping up with all these records, while also showing you where it might need improvement through analysis
One of the toughest parts about starting your own business is maintaining that success long-term. You won’t always be on a growth path, which means you need to keep a close eye on those finances and make sure any innovation in ideas doesn’t come at the cost of profitability. Following these tips of accounting for startups to manage your finances so that you can focus on taking your startup to greater heights.