Startups are launched by a novel idea, your bootstraps, and a passionate team. But there is a reason that 90% of all startups fail, and financial missteps are some of the biggest culprits.
Even the smallest startup needs to make getting their finances in order a focus – it’s not unusual for even the savviest entrepreneur to use the same credit card or bank account for personal and business expenses early on, which they regret come tax season. Having an efficient financial setup early on will save your startup plenty of time and money, both of which are crucial to your early success.
You don’t need to hire an accountant when you’re very early in your lifecycle, but by preparing a solid startup finance foundation, you’ll be in a better position when you’re ready to grow.
A Financial Primer: The Difference Between Accounting and Bookkeeping
Accounting and bookkeeping are different business functions – both of which are key to the health and growth of your business. When you’re in your earliest stages, you likely only need to focus on bookkeeping. If your finances are becoming more sophisticated and you need tax advice or assistance uncovering trends from your investments, that’s when you would need the services of an accountant.
In short, bookkeeping involves the recording of financial transactions in ledgers and journals, while accounting consists of preparing financial statements, interpreting financial data, and assisting in making critical business decisions.
Best Accounting Software For Startups – Are Pilot or Bench Suitable For My Business?
It can be a pain to manage your finances without a dedicated bookkeeper or accountant, and it can distract from other strategic components of our business. Pilot and Bench are two of the top online bookkeeping and accountancy services that are marketing themselves actively to small companies and early-stage startups. If your finances are straightforward or you consider yourself financially savvy, and you just need a service to help you maintain your books, Pilot or Bench offer a range of packages that would be perfect for your needs.
To start, each of these solutions both has a very reasonable monthly price point, and both services are very similar in their bookkeeping capabilities. But before you commit to these services for a required twelve-month term, you may want to read more about how Pilot and Bench compare.
You should also note that Pilot and Bench clients whose finances become more complex find that the price they initially signed up with balloons very quickly as their business begins to grow and get more involved. These initial pricing quotes hadn’t accounted for the a-la-carte add-ons that quickly add up. Many customers complain about being “nickeled and dimed” to death.
Accounting For Startups – FAQs
All startups, at a minimum, must be keeping proper financial records, but even the earliest startup can still benefit from basic accounting practices. This approach will put you in a better position to transition over towards dedicated accounting services when the time comes.
What Types of Records Should I Keep?
If a receipt is related in any way to your business – KEEP IT.
You need a full running record of all expenses, deductions, and credits to file a tax return correctly. This approach includes:
- Business Receipts
- Bank Statements
- Credit Card Statements
- Business-Related BillsInvoicesProof of Payments
- W2 and 1099 Forms
What Type of Accounting Method Should I Use?
There two primary accounting methods are cash basis accounting and accrual basis accounting. Cash basis is more straightforward and tracks income when it is received and expenses paid. Accrual, on the other hand, tracks expenses that are earned through invoices or contracts before the money changes hands.
Cash basis bookkeeping model is ideal for a wide range of small businesses, and generally those that make less than $5 million in gross sales per year. Accrual-based models are required by companies that do a lot more invoicing or subscription-based services or need to account for inventory.
What Weekly and Monthly Tasks Should I be Performing?
Every week, you need to be logging all transactions in your accounting software or spreadsheet and categorizing them. You also need to physically or digitally file all your receipts, so they are organized.
Monthly you will need to pay your vendors and other bills, review any outstanding client payments, and perform an overview of your finances in general. A monthly financial statement helps provide you with this overview. You’ll also need to perform bank reconciliations – ensuring your records align with the credits and debits in your business bank accounts.
It is also a good idea to revisit your budget every month and determine how your projections line up against your financial reality.
Why Should I Create Financial Statements?
A financial statement is a powerful document. It allows you to provide meaningful analysis on your financial data, and share those findings easily with stakeholders. A financial statement helps you identify:
- A proper cash flow analysis and runaway
- Your net profit margin ratio
- Customer analytics: Geography, size, etc.
- Vendor ROI cost analysis
Many software solutions will create a statement for you. Still, depending on your specific needs, you may want a startup CPA to consult on the formatting to glean the most useful information.
When Should I Consider Onboarding an Accounting Firm?
In the Startups.com article Do You Know Where Your Money Is? 3 Tips to Get Your Startup’s Finances in Order, Matt Wool of Acceleration Partners outlines some other helpful tips for laying the foundation for successful startup finances. He suggests creating processes and checks and balances for your finances early on, and also to be honest with yourself regarding how comfortable you are or involved you want to be in your company’s finances. If your startup finance outgrows your level of financial knowledge or reasonable time commitment, it’s time to look into onboarding dedicated financial support.
In terms of your growth cycle, you should look to bring in an accountant when your business model and revenue model are more complex and require more than merely classifying your credit card transactions and banking transactions. If your business has revenue and requires an interpretation of the US GAAP accounting rules, then you may want to expand your scope of accounting partners.
A joint survey by CPA.com and Bill.com asked 1,700 entrepreneurs who employ client accounting services on how they benefit their business. The results showcase the potential of transformative impact for companies of any size:
- Saves Time: 80% of the respondents say that outsourced accounting services provide them more time to focus on their business.
- Easier Accounting: 68% said implementing best practices from their outsourced accounting firm made their accounting easier.
- Increased Profits: 28% report that following advice from their outsourced accountants resulted in increased profits.
California Businesses Trust GCG With Their Accounting Needs
Greenough Group’s startup accounting services are highly sought by both small businesses and rapid-growth tech startups alike. Their involvement in your business is scaleable to remain cost-effective, and their hourly commitment can grow alongside your business.
GCG is the preferred accounting services for startups firm of executive Tom Rowley, who has utilized GCG’s services in several of his ventures: “I’ve brought GCG into my last four startups. Getting finance running smoothly, as quickly as possible, allows me to focus on building the business. Hiring GCG is one of the first things I do.
Our reputation for accuracy, senior attention, and exceptional client service has made us one of the financial community’s most highly recommended back-office services firms. Contact us today for a free consultation and learn how we can help you focus on growing your business.