In the initial days of setting up your business, your primary focus would be on product development and customer acquisition. While you are occupied with this, your startup’s accounting is given the back seat, which should also have been your primary focus.
In order to reach your business goals and build a strong foundation for your company, the startup’s accounting should also be given equal importance. This foundation will support your business in the later days as your company grows and evolves.
That being said, you don’t have to worry about top-down financial projections or 409A valuations yet. Setting up a simple accounting system is enough to establish the financial structure of your Startup.
You might want to consider the following to set up accounting functions for your Startup.
Simple accounting system
You will need a simple low-cost system that will scale with your business. Choose an appropriate software to set up your accounting system. If you find it hard to set up or understand the software, you always have a better option.
Separate your business and personal expenses
This is considered as one of the biggest tax mistakes a Startup can make. In addition to the confusion it creates, you can also be sued and made to pay additional taxes. Always maintain separate debit and credit cards for your business transactions. If you need further clarity and advice regarding this, you may contact the experts.
Set up your chart of accounts
Your chart of accounts is the backbone of your accounting system. It helps you monitor your income and expenses without any confusion. It is also used to sort and ease the task of locating specific accounts.
Track your cash flow
At this stage, knowing your cash position and keeping a track of your receipts and invoices will go a long way into successfully managing your startup and its accounting. It does not matter whether you maintain physical records or on the cloud. But do keep them in an accessible place where you can retrieve easily during the tax times. In my previous article, I have written about what happens when you do not know where your money is going. You can read it from here.
Be wary of your Tax responsibilities
You will make your revenue flow somehow. But before that, you need to think of your taxes. You will also need to have a complete understanding of your federal, state, and city tax obligations. Apart from these, you also have to be on top of the payroll taxes and 1099s. If these responsibilities are too scary, then fret not. You can always take services from a tax expert.
Set up your AP and AR systems
By setting up a system to keep a track of all your invoices and receipts you can be on top of AP and AR. Also, establish invoicing schedules and email reminders to never forget your payments.
Forecast and predict your expenses
If you do not think forAlways anticipate expenses and record it so that it will help to handle cash crunch. When you know the moment you will run out of cash, that when you start accumulating funds. As soon as the funds start to pour in, your accounting system will become more robust. The goal is to keep growing your business without running out of cash.
Hire a help to get your accounting started
I understand that the above information can be too overwhelming to digest if you are not familiar with the accounting field. However, you have to get it done and that does not mean by you alone. You can always take help from the experts. Mistakes you make now will cost you dearly in the future and affect your Startup’s growth.