Accounting & Bookkeeping for Startups
Accounting for startups is important because, in order to keep accurate financial records, you need to implement an accounting system, including bookkeeping that will allow you to keep financial transactions organized as this side of your business becomes increasingly complex.
Our guide to bookkeeping tips and accounting for startups will help you get a better understanding for why you need to make your business’ financials a priority and how to go about doing so
Bookkeeping vs. Accounting
Some people use the two terms interchangeably. They shouldn’t because their meanings are not the same. Both functions, bookkeeping and accounting, are vital for every commercial enterprise.
This involves recording all of a company’s financial transactions, i.e., money coming in and going out, on a day-to-day basis. Upper management cannot make corporate decisions based on data provided by a bookkeeper
“The objective of bookkeeping is to keep the records of all financial transactions proper and systematic.
Accounting is all about interpreting and classifying the financial data. Accountants gather financial data, and then analyze, report, and summarize it. Upper management can make corporate decisions based on data that an accountant provides.
The objective of accounting is to gauge the financial situation and further communicate the information to the relevant authorities.”
As you can see, bookkeeping and accounting go hand in hand, but the two functions are usually divided up into two different roles—the bookkeeper and the accountant. While the bookkeeper handles tracking all of your transactions and keeping your financial records up to date, the accountant will review your financial records to identify issues and recommend solutions for improving the financial well-being and growth of your business.
Some of the Most Common Startup Accounting Problems and bookkeeping Issues Setting Up Financial Goals
Setting up financial goals also helps to establish customer acquisition and revenue goals. In the beginning it might be hard to accurately set reasonable and achievable goal targets, but by at least setting up one to two year milestones to aim for, can help keep you on track to growth and profitability one day.
Time and Quality Management
As startup founder or manager, one of the most important things is your time, and many startups approach finances from a naive or cautious standpoint. And if you are wasting a bunch of time trying to learn how to manage the books, you are doing your company a disservice by not delegating this task and using your valuable time for more productive parts of the business such as sales or product development.
Cash Flow Management Problems
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. This may mean money is being overspent in a certain area and that area needs to be found. Many startups struggle with managing cash flow, whether it’s overspending on marketing / hiring or dealing with unexpected losses. This is the reason why it is so crucial for startups to make accurate accounting a priority from the start. Having a well planned budget helps your startup hit its goals without prematurely running out of cash. For most early-stage startups, the biggest part of burning cash is headcount. You never want to be in the position where you fear not being able to pay your bills or making payroll.