Bookkeeping Guide for Startups For Up to the Minute Accounting Information and Growth
An interesting study by Shikhar Ghosh of the Harvard Business School finds that 75 percent of startups fail. Among the many reasons for failure is lack of good mentorship and taking advice from wrong people and, importantly, lack of business knowledge about finance. Startup Genome finding is even worse: 11 out of 12 startups failed. Again, a crucial factor is that 40% of startups have the cash to last for less than 3 months. In their enthusiasm to get ahead, most startup operators neglect bookkeeping, and, before you know it, cash crunch forces you to shut down operations. Avoid this by following these simple bookkeeping tips.
You do not have to be an accountant.
It does help if you know accounts. However, you do not have to be an accountant to maintain records of financial transactions. You can always engage in bookkeeping services for small businesses for proper accounting.
Be meticulous and regular.
It is understandable for startup owners to focus first on urgent matters like obtaining orders, order execution, procurement, and interaction with business promotion experts. However, putting off bookkeeping to the weekends can have disastrous consequences when you find that expenses are more than income. Time can be a constraint, but you must spare at least a half-hour to jot down financial transactions and keep records at the end of each day. A good alternative is to let outsourced bookkeeping services do it for you, but even then, you must have paper or digital records to pass on to the bookkeeper each day.
Acquire basic knowledge
You could jot down all the expenses, sales invoices, and income in one list. However, it is better to know various heads of bookkeeping and be specific in jotting down entries under specific heads such as:
- Revenues accrued through sales.
- Expenses covering cash outgo for travel, salaries, utilities under separate heads
- Assets such as inventory and payment receivable
- Liabilities covering due payments to suppliers, for taxes and other obligations
Why maintain separate heads? At the end of the week and the end of the month, you jot down the total, and you have a rough idea of the state of your financial health. It is easy to maintain this kind of bookkeeping using an Excel sheet. You may find it better to use regular bookkeeping software. This could be a better way since your bookkeeping service for small businesses can access entries and work on them to prepare statements and correct and correlate entries. This becomes necessary since banks are involved in financial transactions. It becomes complicated.
Single entry and double entry
Engineer entrepreneurs and IT or science-based startup operators will find it challenging to wrap their heads around the double-entry bookkeeping method, but that is how it is done in the real world, and it is a better order to balance books. You know precisely whether you are running at a loss or earning profits. In the double-entry method of bookkeeping, each transaction entails a debit entry and a credit entry. If you do not wish to go deeper into this, you can always leave it to outsourced bookkeeping services to do it in the right way. Meanwhile, you enter each transaction in the excel worksheet or the accounting software.
Tallying and balancing
Bookkeeping appears straightforward, but you will find out discrepancies when you sit down totally and balance accounts. There may be an entry in the bank section, which does not tally with your expense or income list. You may have omitted to add an entry. Some entries may be recorded twice. Tallying involves posting journal entries to proper account sections in the general ledger. Smart business people tally books at the end of each week or each month. You know the accurate status of your accounts through balancing, and you can take remedial action. If balancing books is not something you wish to do, you must let a bookkeeping service for small businesses do it for you by balancing books and drawing up financial statements.
Know about the balance sheet, profit & loss account, and cash flow
It takes time for some without a background in accounting to understand the balance sheet’s nuances and profit and loss account. It is best to let a professional bookkeeper oversee accounts and draw up these statements to keep you apprised of your financial health. The bookkeeping service maintains books and has top-level financial analysts to guide you. For instance, you may calculate profit as the difference between the cost of purchase and sales proceeds. Other factors considered, such as depreciation, liabilities, and indirect costs, alter the picture. This is where expert advice keeps you in the know. You can make better decisions.
There is no escaping bookkeeping. As a business owner, you must be grounded in basic accounts and maintain day-to-day records of financial transactions while leaving the detailed part to outsourced bookkeeping services. This way, you avoid falling into the 90 percent failure bracket.