Starting a business is engaging, and areas like product development, fundraising, marketing, etc., take most of the attention of any entrepreneur, and naturally, accounting gets left behind.
If you are an entrepreneur who is not a numbers person, then going through endless financial documents will seem dreadful to you. But you should know that only accounting will provide you with the clearest picture of your business’ success and financial health.
All the innovative ideas in the world cannot keep a business afloat when the cash runs out, so whether you love it or not, proper bookkeeping is essential to the success of any startup. Below are ten tips that will help you stay on top of your startup’s financials –
Table of Contents
1. Know the Law
The first and foremost step you should take while trying to manage the financials of your startup is to know about the laws that apply to your business. You will never learn the skill of good bookkeeping unless you don’t understand why it is so important.
You should know the answers to questions like –
- When do the taxes need to be filed?
- What information is required to record your revenue and expenses?
- How long should the copies of invoices be saved?
It is better to be prepared beforehand than feeling sorry during tax season.
2. Put Personal and Business Expenses Apart
Just as how important it is to keep your business and personal life separate; it undoubtedly applies to your personal and business expenses also. It is challenging to manage the cash flow of your startup if you cannot view it separately.
Open a separate bank account for your business if you haven’t done it already.
3. Keep a Watchful Eye on Expenses
The most common problem faced by any entrepreneur while running a relatively new startup is keeping a close eye on expenses. Mere expenses like team lunches and office stationery can also empty your pockets before you come to realize it.
It is impossible to run a household smoothly if you have a carefree attitude towards tracking expenses, leave out running a business with the same approach.
Use a business credit card to pay for your expenses and link it with good accounting software; this way, you will not find yourself sorting through a bunch of receipts in your wallet.
Using a credit card will also help you earn rewards and points apart from easy tracking. Proper bookkeeping can help save money by helping you to track the expenses carefully.
4. Get a Cloud-hosted Accounting Software
Managing financial accounts is not every entrepreneur’s cup of tea. So, if you are also not very good with numbers, you may want to get a good accounting software for your startup.
Though there are various options available in the market, it is better to go for cloud-hosted accounting software such as hosted QuickBooks because of the numerous advantages it offers, like anywhere, anytime access, collaboration between your employees, robust data security, and automatic back up of your financial data.
Accounting software will allow you to link your bank account within itself. It will then track your income and expenses, help you to send and track invoices, and generate detailed reports about the financial health of the startup.
Good accounting software will help you leap and bounds in not only keeping you on top of your finances but also in improving the efficiency and productivity of your business.
5. Hire a Professional
With experience and a little learning, you may get good in managing the financial accounts of your startup. Still, as it continues to grow, you will not be able to match the expertise of someone having a professional degree in accounting.
Hiring an accountant for only a few hours a week or month will make a huge difference. He/she will help you file taxes accurately by letting you know about any potential fees and save on deductions by finding loopholes.
He/she will be well versed in the different IRS provisions and requirements that will help you in saving money and time.
You should hire an accountant who may take the role as your trusted financial advisor one day. He can provide expert advice on how you will achieve your short-term and long-term business goals by looking at your financials.
Just make sure that your accountant explains things to you in a way that you understand.
6. Accurately Track Salary
Paying your employees will cost around 70% of your business’s entire budget. Commonly, people tend to work overtime and on holidays to meet tight deadlines in a startup, so it is also essential for you to pay them accurately.
If you manually track the leaves and overtime of your employees, it can get cumbersome. Your accounting software should help you accurately track the hours and salary of your employees by linking it to a biometric attendance system. Your accountant can also help you to calculate payroll taxes as they are different from income taxes.
7. Better Save than Sorry
“Hope for the best and be prepared for the worst” maybe an old cliché, but it is quite relevant for entrepreneurs when a bank study suggests that 82% of businesses fail due to poor cash flow management.
You may face cash problems if your invoices are not paid until your loans are due or simply the work does not come up. You may also miss out on an excellent investment opportunity if you do not have any cash on hand.
Thus, to avoid such problems, you should have enough savings that could propel your business for at least three months, the more, the better.
8. Manage Inventory Records Effectively
Thefts in the U.S. account for roughly $50 billion each year and can completely throw your bookkeeping off the tracks. You may avoid missing goods even if you accurately track the purchase and selling dates, prices, and current stock numbers.
If you have to manage a large inventory, then you should automate this task by buying a separate inventory management software, or your accounting software may also help with this task.
9. Chase Late Payers
Nothing can hurt your cash flow management, like clients who don’t pay on time. Sending invoices right after the job is completed increases the probability of receiving prompt payment.
Apart from sending an invoice on time, you should also make sure that they are easy to read and offer multiple payment options. You can also keep a bill discounting or incentive scheme that provides value to clients who pay on time.
Your accountant or accounting software can help you in establishing efficient tracking of invoices that gives you updates about the payment status of all your invoices. Send gentle reminders to customers whose invoices are due and try to know the reason behind the late payment.
If some of your clients are unable to pay on time, chart out a payment plan for them that benefits both parties.
10. Set Future Goals
If you dream about seeing your startup as a billion-dollar company one day, you should establish clear cut short- and long-term goals for your business. If you don’t set measurable weekly, monthly, and quarterly goals, you are bound to wander off course and not able to achieve anything great.
Bill Copeland rightly said – “The trouble with not having a goal is that you can spend your life running up and down the field and never score.”
Financial forecasting can help you set the short- and long-term goals as it helps you to estimate the growth of your startup for the next quarter or even for the coming two or three years. Figuring out how expenses (due to inflation) and your client decisions will change can be a tricky task and should be done with the help of your accountant or accounting software.
Getting your startup, a good kick start is a job half done, as the other half lies in keeping it profitable for the long run. Keeping a business on a growth path is not easy, as it requires careful observation and constant innovation.
Following the above tips will help you to clearly observe the financials of your business so you can put all your focus on the innovation of ideas and take your startup to new heights of success.