24 August 2022
No creative thinking and innovative ideas can sustain a startup business when the finances run out, therefore accurate bookkeeping and accounting are crucial for every startup business to survive and grow. Here are ten bookkeeping and startup accounting tips to help you manage the startup finances:
1. Basic knowledge of the law
Knowing the startup laws and rules that apply to your business and why they are so crucial is the first and most critical step you should take when attempting to handle the startup finances
You should be aware of the following:
• What startup registrations are necessary to launch the startup business?
• What details and records are necessary to record your earnings and outgoings?
• What taxes are levied on income and outgoing costs?
• By what deadlines must taxes be paid and filed?
• How long should invoice copies be kept on file?
It is better to be prepared beforehand during tax season.
2. Knowledge of startup accounting methods
Running a startup business involves more than just keeping track of the money that comes in and goes out. Instead, the timing of when you record income and expenses i.e, whether you use cash basis accounting or accrual basis accounting, influences how you manage your company's finances.
In cash-basis accounting, you only record income and costs when money has changed hands. If you raise an invoice to someone for a project, the funds will only be recorded as income once it is deposited into your account. The same goes for startup expenses.
Contrarily, under accrual accounting, income is recognised when it is earned and expenses are recognised as they are incurred. If you are employed for a job, you record the money once it has been completed.
While each accounting method has its own advantages and disadvantages, accrual-basis accounting provides a more realistic view of your company’s finances and performance.
Accrual accounting is also better from a tax standpoint since you can claim company expenses on your tax return in the year you incur them rather than the year you actually pay them.
3. Knowledge of basic bookkeeping terminologies
Undoubtedly, you'll encounter new words and phrases, from startup balance sheets to income statements. You should be aware of certain words and expressions.
Here are five of the most common bookkeeping phrases you should be aware of, since it is impossible to list them all here.
4. Distinguish your personal and business finances
It's a common error in startup business bookkeeping to mix together personal and business finances. Your company will have trouble as a result in the future. So, as soon as you decide to move forward with your startup, it is always advised to register a separate startup business bank account. This makes it easier to keep track of all your earnings and outgoing costs, and it also helps your company establish its own credit rating.
5. Automate whatever you can
Use cloud-based bookkeeping software, and do your business banking online. That way, you can sync your bookkeeping software with your company’s bank account so you always have accurate, up-to-the-date records. Additionally, your essential financial data is securely backed up off-site via the cloud.
6. Retain all documents
Startup expenses can be claimed only if the invoices are available in the name of the startup business. Invoices determine the nature of the expenses incurred, whether it’s a Capital or a Revenue expenditure. Hence, if it is incurred for your business, then it has to be retained either to balance your accounts, to determine tax liabilities or to claim tax deductions!
7. Make a schedule for bookkeeping review
If you need to make a crucial call, you will make time for it. Why not schedule time to review your bookkeeping as well?
Plan to review your books every week or every month. This will ultimately save you time. Additionally, it guarantees that you won't be stressed out at the end of the fiscal year!
Setting aside time for your books is a wise move, even if you outsource your accounting. By monitoring your bookkeeping, you can control your cash flow. You may find it useful when making decisions.
8. Set aside funds to pay the taxes
Even though the majority of individuals are aware they must pay business taxes, very few startup business owners prepare for taxes. The issue is that many startup business owners find they don't have enough cash in hand to pay their taxes when tax season rolls around. As a result, they end up paying the taxes after the expiry of the due date along with Interest & penalty. This adds to the financial burden.
As a result, one of the ideal cash flow management tactics is to set aside money for all of the business taxes you’ll have to pay during the year.
9. Create a budget for your company
The last thing you would want to do when running a startup business is to rely on guesswork. Many startup business owners find they are in the middle of a project and have no money to continue. And by the time the understanding sinks in, it's too late to make arrangements for money.
That is where creating a thorough business budget is really helpful. It provides you with a clear picture of potential charges. You can take a number of steps to stabilize your financial situation once you've accepted the amount needed to attain your future ambitions. Additionally, it will equip you for future unforeseen difficulties.
10. Work with a Professional
You might become proficient at handling your startup's financial accounting with time and some learning. But as it develops, you won't be able to match the knowledge of someone with a professional accounting degree.
Even a few hours each week or month of professional assistance will make a significant difference. He or she will assist you in accurately filing your taxes by informing you of any potential fees and helping you locate loopholes to reduce deductions and save time and money.
You ought to employ a startup specialist who might serve as your valued startup advisor. He or she can offer knowledgeable guidance on how to accomplish your short- term and long-term startup business goals.
The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.
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