Starting a business is exciting, and topics such as product development, financing, marketing, and so on consume the majority of any entrepreneur’s focus, leaving accounting behind.
Going through endless financial records will be awful if you are a businessman who is not a numbers guy.
You should be aware, however, that only accounting will provide you with a comprehensive picture of your company’s success and financial health.
All the original ideas in the world will not be able to keep a firm afloat if the cash runs out; therefore, whether you like it or not, efficient bookkeeping is important to the success of any startup.
Here are some accounting tips and ideas to help you stay on top of your startup’s finances:
Essential Accounting Tips For Startups
- Separate personal and business expenses
- Maintain a close eye on expenses
- Purchase accounting software that is hosted in the cloud
- Employ a professional
- Maintain accurate salary records
- Better to be safe than sorry
- Effective inventory record management
- Target late payers
- Make plans for the future
Let’s dive into all these accounting tips to take your startup to new heights of success.
Separate personal and business expenses
It is just as crucial to keep your work, and personal lives separate as to keep your personal and company costs separate. Managing your startup’s cash flow is difficult if you cannot see it individually.
Here is how it helps;
- Tax Compliance: Simplifies tax filing and maximizes deductions.
- Financial Management: Offers clear visibility into business cash flow.
- Professionalism and Credit: Enhances business image and credit history.
- Legal Protection: Shields personal assets in case of legal issues.
If you haven’t already, open a separate bank account for your business.
Maintain a close eye on expenses
An entrepreneur’s most typical issue while running a new firm is keeping a close watch on spending. Simple expenses like team meals and office consumables can quickly drain your bank account.
Running a household with a careless attitude toward managing spending is impossible, let alone running a company with the same mindset.
Pay for your expenses with a business credit card linked to decent accounting software; this way, you won’t have to wade through a stack of receipts in your wallet.
Besides making monitoring easier, using a credit card allows you to collect rewards and points. Accounting can save you money by properly managing your expenses.
Purchase accounting software that is hosted in the cloud
Managing financial accounting is not for every entrepreneur. If you are not excellent with numbers, you should invest in effective accounting software for your startup.
Though there are other solutions available on the market, cloud-based accounting software such as hosted QuickBooks is preferable due to its multiple benefits, such as anywhere, anytime access, staff collaboration, comprehensive data protection, and automatic backup of your financial data.
Accounting software will make it possible to connect your bank account. It will then track your income and expenditure, assist you in sending and tracking bills, and provide thorough reports about the startup’s financial health.
Good accounting and tax software can help you not only stay on top of your finances but also increase the efficiency and efficiency of your firm.
Employ a professional
With practice and a little education, you may be able to manage the financial records of your startup. Even so, when it grows, you will be unable to match the competence of someone with a professional degree in accounting.
Hiring an accountant for a few hours each week or month can make a significant difference. They will help you in filing your taxes correctly by informing you of any potential costs and saving money on deductions by locating loopholes.
They will be well-versed in the many IRS laws and procedures, allowing you to save money and time.
You should pick an accountant who will one day serve as your valued financial advisor. By reviewing your financials, he can provide expert guidance on how to reach your short- and long-term business goals.
Simply ensure that your accountant explains everything to you in a way that you comprehend.
Also read:- Cost of an accountant for a small business
Maintain accurate salary records
Paying your staff will use roughly 70% of your company’s total expenditure. People in startups frequently work extra and on holidays to meet tight deadlines. Therefore it is critical that you pay them on time.
It can be time-consuming to track your employees’ leaves and overtime manually. By connecting your accounting software to a biometric attendance system, you should be able to track your employees’ hours and salaries precisely.
Payroll taxes differ from income taxes; thus, your accountant can assist you in calculating these.
Better to be safe than sorry
“Hope for the best and plan for the worse” is an old adage, but it’s especially essential for entrepreneurs when bank research shows that inadequate cash flow management causes 82 percent of enterprises to fail.
If your bills are not paid until your debts are due, or if the work just does not come up, you may run into cash troubles.
If you don’t have any cash available, you can miss out on a great investing opportunity.
To avoid such situations, you should have enough funds to sustain your firm for at least three months, preferably longer.
Effective inventory record management
Thefts in the United States cost over $50 billion annually and can ruin your operations. You may avoid missing things even if you keep an exact account of buy and selling dates, prices, and current stock numbers.
If you have a significant inventory, you should automate this operation by purchasing a separate inventory management system, or your accounting software may assist you with this task.
Target late payers
Clients who do not pay on time might hurt your cash flow management. Sending invoices as soon as the job is finished increases the likelihood of fast payment.
Addressing late payments is crucial for maintaining healthy cash flow in businesses. Here are some strategies enhanced with facts and figures to manage late payers effectively:
- Immediate Invoicing: Businesses that invoice immediately post-service can shorten their payment cycles. A study shows that invoices sent on the same day services are completed are paid up to 1.5 times faster than those sent a week later.
- Clear and Convenient Invoicing: Simplifying invoice formats and offering multiple payment options can increase on-time payments by up to 30%. Easy-to-understand invoices and diverse payment methods cater to client preferences, significantly reducing payment delays.
- Incentives for Prompt Payment: Implementing a discount or incentive for early payments can improve on-time payment rates. Research indicates that small discounts (even 2-5%) can increase the likelihood of on-time payments by 35%.
- Efficient Invoice Tracking: Utilizing accounting software for invoice tracking can reduce the average time to receive payments by up to 50%. These systems notify businesses of overdue payments, enabling timely follow-up.
- Friendly Payment Reminders: Sending polite reminders for overdue invoices can increase collection rates. Studies have shown that a simple reminder can boost payment rates by 25% within a week of the reminder being sent.
- Flexible Payment Plans: Offering payment plans for clients struggling with on-time payments can recover up to 70% of otherwise lost revenue. Tailored plans ensure that the business maintains cash flow while supporting client needs.
Make plans for the future
If you want to see your startup become a billion-dollar firm one day, you need to set clear short and long term target for your organisation. If you don’t create measurable weekly, monthly, and quarterly goals, you’ll veer off course and fail to accomplish much.
Financial planning can help you create short- and long-term goals by estimating your startup’s growth for the next quarter or even the following two or three years.
Calculating how your spending (due to inflation) and client decisions will change can be difficult and should be done with the help of your accountant or accounting software.
Conclusion
Getting your startup off to a solid start is only half the battle; the other half is maintaining it profitable in the long run. Keeping a firm growing is difficult since it necessitates ongoing observation and creativity.
Following the top accounting tips for startups will allow you to clearly monitor your firm’s financials, allowing you to focus entirely on concept innovation and propelling your startup to a new pinnacle of success.
Need assistance with your accounting tasks? Consider exploring offshore accounting services!