The Founder’s Guide to Startup Accounting

accounting for startups

Accompanying the rise of entrepreneurship and the start-up economy, there has been an increasing interest in the area of accounting services that can help the Founder through important stages.

You have a great idea for your business, you believe that there is a need for this business, and you have the desire to go out into the world and start your own business. Before going all the way in, it is necessary to have a correct accounting foundation as a start. To the extent that there is a struggle associated with accounting, many founders overlook it when starting, and only worry about it when it is already causing a lot of problems.

This Startup Accounting Guide

Choose Your Business Structure

When you are starting legally your company you are going to have to decide the legal structure of your business. The most common types of entities are sole traders, partnerships, S corp, C corp, and LLCs. They all have different tax and legal characteristics including participants’ liability for ownership, availability of investors, and organizational and legal issues. However, it is recommended to consult legal and accounting consultants and choose the right structure for the planned objectives.

Set Up Bookkeeping Basics

It may not sound too sexy but the act of recording your income and expenditure accurately is the bedrock of all financial planning. Record transactions using cloud accounting software such as Quickbooks or Xero to automate the flow of money in and out of the business. The following are some of the considerations to make depending on whether you are hiring staff or contracting workers: Payroll software. As the transactions increase, these tools will offer insight into your cash position.

Track Everything

The first thing easily noticed in any startup is that every dollar is critical. The organization should turn a blind eye to any business expenditure no matter how insignificant they may appear such as web hosting services or any monthly subscription to business software. Develop a procedure of how you want to gather receipts and input them so that you can take advantage of every expense that is eligible for tax deduction. Meals and travel expenses, vehicle expenses, and office expenses can also be considered deductions when the items are exclusively used for business. Document everything.

Manage Invoices

Integrate invoicing from your accounting software to make invoicing efficient when billing clients on a specified frequency, collect payment online, and match the transactions. Use industry normalities such as net 30 days, set up payment alerts, and do not have pitfalls such as having to wait for client payments while dealing with your expenses or having your client forget that they owe you money.

Monitor Cash Flow

Cash is the lifeblood of any start-up. It is recommended to utilize your income statement and balance sheet regularly to track your cash flow. Another question is whether you have been using too much and too quickly. Is having unpaid customer invoices? Subtracting: As you construct the business, ensure that you are cutting your expenditure to ensure that your cash reserve is always strong.

Bring On an Accountant

Hire an accountant, of course, all founders need it in the end, or at least most of them. Accounting issues such as taxes, payroll, financial reporting, and strategic planning should be done by the right accountant, while the business owner/CEO focuses on customers and products. They also provide the accounting requirements at various development phases. Be proactive about searching for the right accountant, especially one who has experience working with startups.

Understand Tax Requirements

Founders often do not prioritize taxes until it is some time before a deadline or when the business is already beyond the startup period. Payroll tax, sales tax, income tax – no matter which it is, if you do not file your taxes on time, you are bound to get penalties. An accountant can help to identify applicable federal and state requirements but you should also know some basic things, such as when and how to file quarterly estimated payments and annual returns.

Plan For Audits

For a start-up, external audits are not necessary; however, if in the future one wants to attract investors or seek a loan, they will be needed. Audits look at your books with a view of checking the level of accuracy as well as compliance. It is important to have effective internal controls and efficient financial systems in place. Failure in record keeping can affect funding and growth strategies as auditors may need to correct missing entries first.

A business start-up is an exciting process, especially in the first stages when everything happens very quickly, however, it is important to spend some time up-front putting a robust framework for accounting systems and processes in place as this will provide significant benefits in the long run. To ensure sound financial reporting and record-keeping the organization should adhere to all the best practices in bookkeeping, reporting, taxes, and auditing even though it may be redundant it offers the visibility into the organization’s financial status necessary for the management of the operations and strategies. That way, you will be able to achieve improved results since you do not have to spend too much time and effort on accounting matters but can instead work on the actual growth of the business.

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