Bookkeeping Basics For Entrepreneurs

startup bookkeeping 101

Before filing your first business tax return, you’ll need to choose one of two possible accounting methods. A balance sheet is a document that shows a snapshot of your business’s financial “vitals”. Your weight, blood pressure, and heart rate are key indicators of your current health. On a Balance Sheet, your current assets, liabilities, and shareholder’s equity shows you the financial position of your company. If you don’t have any employees yet, you don’t have to worry about payroll.

startup bookkeeping 101

Meanwhile, accounting refers to using bookkeeping records to refine or interpret financial statements for various purposes. For example, that would include filing a tax return, analyzing revenue trends, and investigating areas of overspending. The accrual method of accounting is more complex and includes accounts receivable and accounts payable line items.

Best 5 Accountants for Startups (Including Online Accounting Services)

If you are running a SaaS startup, and you sell a 12-month contract to a client for $120,000 in January, on a cash basis you record $120,000 and that’s it. You don’t get any more revenue from that client for the rest of the year. That really doesn’t reflect reality, because you still need to deliver that service for the rest of the year.

startup bookkeeping 101

Overall, ratios can be a valuable tool for startups when it comes to understanding and managing their finances. An effective inventory management system will help you stay on top of your stock levels and make sure that you always have the right amount of product on hand. This includes everything from raw materials to finished products, and keeping tabs on your stock levels will help you avoid costly mistakes. When starting a new business, one of the most important things to keep track of is your inventory. When starting a business, it’s important to be mindful of the types of expenses you can incur. Generally accepted accounting principles (GAAP) are a set of accounting standards and procedures that companies must follow.

Set up a small business payroll system

This might save a few bucks but can come at the expense of jeopardizing accounting accuracy. In addition, the cost of accounting software has plummeted during the past two decades, making it a viable option for almost any business. It might be helpful to consider the difference in cost and service between hiring in-house and outsourcing your accounting needs. Outsourcing is typically less costly and often preferred when a business matures to the point of first requiring a professional accountant. Bookkeeping and accounting are both necessary for healthy financials, but they are not interchangeable.

After all, every penny counts and you don’t want to waste money on unnecessary expenses. So if you’re ready to take your startup to the next bookkeeping for startups level, make the switch to a paperless office. However, making the switch to a paperless office can be daunting, especially for startups.

How Lendio’s Bookkeeping Solution Can Help

A financial expert can give advice specific to your unique business and give you a more in-depth look at basic bookkeeping principles. Bookkeeping is the process of recording your business’s financial transactions so that you know exactly how much you’re making and where your money is going. Your company is expanding, you have raised a large amount of funding and you see a need to deploy your capital and increase your spending. Now in times of growth it’s even more important to manage your cash properly.

The training doesn’t take long and can be done a variety of ways (books, seminars, video courses, online tutorials) to fit your schedule and preferred learning style. Bookkeeping, in general, doesn’t add anything to the bottom line, so it doesn’t feel as important as other activities. It also just isn’t as much fun as coming up with a new product idea or marketing campaign, and it’s more stressful than doing some filing or ordering office supplies.

Another major area where CPAs can be much better than a simple bookkeeper are producing tax returns – and interacting with tax authorities like the IRS or state tax agencies. CPAs are legally allowed to provide tax services above and beyond what other accounting professionals can do. Say your business idea has turned into a startup company that produces a product or service that is making money and turning a profit. If you have not already been tracking your expenses, sales and revenue, now is the time to set that up. One common theme I hear from growing startups is that the cash flow looks healthy, but the profit margin looks weak.

  • It is usually not until later in a business’ life that an accountant becomes necessary.
  • You may do this every month, but at the very least, balance and close your books every quarter.
  • You don’t have to worry about damaging or losing your documents, and you can transfer them to a bookkeeper or accountant more easily.
  • Setting up bookkeeping or accounting software includes connecting business bank accounts, doing any necessary data entry and reconciling transactions.
  • Deposit insurance does not apply to non-deposit products, such as stocks, bonds, money market mutual funds, securities or commodities.

While most startups begin with a DIY approach to accounting, at some point, it becomes necessary to bring in professionals to handle the financial side of things. In the early stages of a business, cash flow is often tight, so it’s important to make sure that your finances are managed in the most efficient way possible. By following these tips, you can set your startup up for success from a financial standpoint. If the demands of startup life mean you don’t have time to learn QuickBooks, or if you’d rather leave bookkeeping to a pro, try Bench (that’s us). You’ll also likely want an accountant on your side for tax time.

Leave a Comment

Your email address will not be published. Required fields are marked *