66% of small businesses prefer to outsource services as it saves time and money. If you are looking to outsource your accounting work, you can opt for IBN Technologies.
Accounting is an essential aspect of any business. It provides a clear and accurate picture of the financial health of the business, which is crucial for making informed decisions and identifying areas for improvement. It also helps you comply with legal requirements and facilitates tax planning.
If you are not good at maintaining accounting, that's okay. You can always hire an accountant or outsource your accounting needs to a professional accounting firm. Alternatively, you can use accounting software, which can help you automate many of the accounting tasks and make them more manageable. In this article, we provide 10 basic accounting tips for startups. These lessons will help you to manage your finances and stay organized. By understanding your financial information and playing around with simple calculations, you can stay on top of your business operations.
Global Industry Distribution of Startups
10 Basic Accounting Lessons for Startups
1. Keep track of expenses and income
When you are starting a business, it is important to keep track of your expenses and income. This will help you to understand how your business is performing and where you can make adjustments. Additionally, it can be helpful to have estimates for future expenses so that you are not surprised by large expenditures.
One way to make it easier to track expenses is to use a business credit card and link it with accounting software. This can help you automate the process of tracking expenses and make it more efficient. Using a credit card can also help you earn rewards and points, which can be an added benefit.
2. Keep personal and business expenses separate
Keep personal and business expenses separate as it helps you get a clear picture of your business's financial health. When you mix personal and business expenses, it becomes harder to accurately track your business's income and expenses, which makes it more challenging to make informed financial decisions. There are various softwares such as Freshbooks, Everlance, etc which you can use to track and segregate personal and business expenses easily.
Separating personal and business expenses can also make it easier to get funding or a loan. Lenders and investors often want to see a clear separation of personal and business finances as it demonstrates a level of professionalism and helps them assess the financial health of the business.
Accounting is the most crucial part of a business.
3. Chase late payers
Late payments from clients can be a major problem for businesses, as they can disrupt cash flow and make it difficult to pay bills and meet other financial obligations. To help ensure that you receive prompt payment, it is important to send invoices promptly after a job is completed and to make sure that your invoices are clear and easy to understand. You can also consider offering multiple payment options, such as the ability to pay online or by credit card, to make it easier for your clients to pay. You can also consider offering incentives or discounts for clients who pay on time.
To track your invoices, you can use an accounting software program or work with an accountant. This can help you keep track of which invoices are due and whether they have been paid. If you notice that some invoices are overdue, you can send gentle reminders to your clients and try to find out the reason for the delay. If necessary, you can work out a payment plan with your clients to help ensure that they pay on time.
4. Pay attention to cash flow.
Cash flow is an important metric of a company's financial health. It shows you how much money is coming in and going out each month. This information can be used to make decisions about licensing new products or entering into new contracts.
One way to manage cash flow is to build up a financial cushion or emergency fund. Having enough savings to cover expenses for at least three months can help ensure that your business has the resources it needs to weather any unexpected setbacks or delays. The more savings you have, the better prepared you will be to handle unexpected financial challenges.
However, managing cash flow can be challenging, especially when unforeseen circumstances arise. To overcome cash flow problems, one can follow these practical steps.
5. Develop a bookkeeping system
Developing a bookkeeping system is an important part of managing the finances of a business. Bookkeeping involves recording and categorizing financial transactions, reconciling bank statements, and preparing financial reports.
Here are a few different methods you can use to manage your bookkeeping:
Do it yourself (DIY): If you have the time and knowledge, you can use accounting software to manage your bookkeeping. This option can be cost-effective, but it may require a significant investment of time and effort.
- Outsource the accounts: If you do not have the time or expertise to manage your bookkeeping, you can hire an outsourced or part-time bookkeeper to handle the task for you. There are a number of Outsourcing Accounting & Bookkeeping companies that offer cloud-based services, which can be a convenient and cost-effective option
Hire an in-house bookkeeper: If your business is large enough, you may want to consider hiring an in-house bookkeeper. This can be a good option if you have a high volume of transactions or complex accounting needs
Outsourcing accounting services will save your time and money.
6. Track taxes and withholdings.
It is important to know how much tax you are expected to pay as a business owner. You should also keep track of any other taxes that may be due, such as sales tax, state local income tax, franchise taxes, property taxes and federal taxes. By understanding your tax obligations, you can make informed decisions about how to spend your company's resources.
7. Track your credit report
It is important to keep track of your credit report so that you can understand your financial stability. This information can be used to determine whether you are eligible for loans or credit cards. You should also monitor the credibility of business by checking on the financial (P&L account, balance sheet and cash flow statement) to get loans.
8. Identify the method of accounting
There are two methods of accounting: the cash method and the accrual method. The method you choose will depend on your business and the type of financial information you need to track.
Most businesses use the accrual method of accounting because it provides a more accurate picture of a business's financial performance over a given period of time. However, small businesses and those that do not have a significant amount of inventory may choose to use the cash method. It is important to choose the method that best fits your business needs and goals
9. Know the law
It is important for businesses to understand the laws that apply to their operations in order to stay in compliance and avoid any legal problems. This includes understanding the tax laws that apply to your business, such as when taxes need to be filed and what information is required to report your income and expenses.
The best way to stay up to date on the laws that apply to your business is to consult with a professional, such as an accountant. They can provide valuable advice and guidance on legal and regulatory matters and can help you ensure that you are in compliance with all applicable laws.
10. Outsource your accounting work
If you are unable to maintain your financial records or have difficulty with tax and compliance matters, it may be a good idea to outsource your accounting work to IBN Technologies. They can help with financial and tax matters, including accounting and bookkeeping. However, It is important for you to provide accurate and up-to-date financial records so that they can make informed decisions and properly plan for the future.
11. Set up HR system
Setting up a payroll and HR system is an important part of running a business. A payroll system is used to process the salaries and wages of employees, as well as to manage tax withholdings and other deductions. An HR (human resources) system is used to manage employee information, such as contact details, job titles, and work schedules. Forms like W2, W9, 19 are important because they help ensure that employees and contractors are paying the correct amount of taxes and that the company is complying with tax laws.
Employees use W-2 form to complete their tax returns and to determine whether they owe additional taxes or are entitled to a refund, W-9 form is a tax form that is used by an employer to obtain the tax identification number (such as a Social Security number) of a contractor or other non-employee and form W-4 is a tax form that employees use to tell their employers how much federal income tax to withhold from their paychecks.
Managing the finances of a startup is an important task that requires careful planning and attention to detail. By following these lessons, you can help your startup succeed and grow.
Frequently asked questions
1.What are the important accounting activities?
The five important accounting activities are financial transactions, Trial balance period, Reporting period with financial reporting, auditing, Journal entries and posting to ledger.
2.What are the most important accounting tips for startups?
Know the law
Put personal and business expenses separate
Keep a track on expenses
Outsource your accounting work
Accurately track salary
Manage inventory records
Chase late payers
3.What are the accounting tips for entrepreneurs?
Here are some accounting tips entrepreneurs:
Open a business account
Prepare for taxes early
Save for big emergencies
Keep every receipt
Find the right software