Have you recently established your business? The early stage of running your startup is the best time to put together a well-defined accounting process that addresses your business needs towards running your operations in a timely manner.
A good accounting process will consider getting the basics right first like recording and organization of business transactions as they will form the basis of how the final accounting data is built and how it powers financial projections that support business growth.
This doesn’t have to be complicated. The idea is to build your accounting infrastructure in a way that supports business operations, finances and facilitates financial strategy for the growth stage.
We have put together a ten-step process that will help you design your own accounting process as a startup.
Pick a simple accounting system for your startup
There are great online accounting and bookkeeping solutions available that have made it immensely easy for companies and startups to record their business transactions.
According to a study, QuickBooks, an accounting software, caters to more than 80% of the market share in the U.S. From preparing financial statements to deciding when to outsource CFO services, platforms like QuickBooks help you manage your books in a way that it aids intelligent business decisions in the F&A domain.
As a startup, you need a platform that’s easy-to-use, inexpensive, professional, and that offers scalability to keep up as your business grows.
Set Up Your Personalized Chart of Accounts
At a certain point, after establishing your startup, you have to run and manage various accounts, and you need your chart of accounts ready to record business transactions accurately.
Your chart of accounts works as the foundation for your accounting software. Hence make sure that it aligns with your business model and financial structure and helps you record and report business revenue and expenses.
Create a New Bank Account
While setting up the startup, you may have been using your personal bank account, but going further, you have to create a new business account. A bank account with online accessibility can be beneficial at avoiding additional and unnecessary processes and managing business cash flow.
You can also incorporate personalized features like automatic invoicing for regular sales accounts and avoid liquidity problems by managing business receivables and payable. Besides, make sure your business bank account smoothly integrates with the accounting software.
On top of all this, personal bank accounts can create a major compliance and taxation issue as your business is a separate entity from you. A business bank account will allow you to have easier compliance with these issues and help in realizing beneficial tax savings as well.
Keep Personal, and Business Expenses Separate
One of the common problem startups struggles within the initial phase is to keep personal and business costs separate. It may not seem like a big deal at the time, but it can lead to some major problems down the line.
Mixing the two can mean extending your personal financial liability to that of your business, which can be really harmful to you if your firm is facing a lawsuit or legal litigation.
You may also risk getting your corporate status stripped off legally due to this issue.
On the other hand, you can avoid all this by simply setting up a separate business checking and savings accounts, and get different debit and credit cards. This will make your job very easy when preparing an income statement and balance sheet for the business.
Keep Your Invoices and Receipts
Hold on to all invoices and receipts no matter how trivial the amount may seem.
At the year-end, when you are preparing financial statements, a difference of a small amount will make you regret not maintaining a proper record of all transactions.
These days it has become easier to maintain a record of invoices and receipts by using cloud-based software. They help you keep records organized and allow you to access them from anywhere, enabling you to avoid a lot of stress during the tax season.
Understand And Keep up With Your Tax Obligations
As a newly established startup, you might not be used to it, but you have to keep tax obligations and requirements in mind when working on your accounting processes. Even before you start making any sort of revenue, make sure that you understand the federal, state, and city tax laws and obligations that are applicable to your business.
Don’t forget to consider the registration fees and other similar compliance requirements as well.
As stated in the above point, keeping a clear record of all transactions, makes tax compliance much more manageable. It will also help your business claim optimum tax cashback.
Make sure to hire a tax professional to guide you through your payroll taxes, quarterly profit taxes, and other obligations that may follow. An expert can help you better plan and prepare for tax time and achieve minimum tax bite.
Put Together a Payment System For The Business
As your business grows, you will feel the need for a formal accounts payable system that helps keep the cash flow healthy and aids in the creation of your financial reports. You can outsource this task to accounting experts if you don’t have the resources to manage this in-house and allow them to help you set up a payment tracking system that is useful and scales as the business expands.
Once your payment system is in place, enter all expense transactions and a list of your vendors, and generate an invoice schedule that you can use for all payable accounts. This will not only help you be organized, but it will also help build a more reliable business credit score.
Set Up a System for Account Receivables
Just like the payment system, you also need a structure to approach receivables. The other side of maintaining maximum cash flow is managing payment collections.
A sound collection system should enable you to manage all invoices and balances at once. Moreover, make sure you have your payment terms, credit guidelines with a collection timeline in writing and shared with all business clients to avoid any collection problems later on. Besides, make sure to keep your payment collection process simple, to begin with, you can take checks and use PayPal for online payments.
Get Customized Payroll Solutions
If you are already making purchases and sales, chances are you have employees helping you run your business operations. Hence, to avoid problems in the future, hire professional payroll solutions that meet your current needs, and have the capacity to increase the workload as your employee count increases.
Whichever service you may go with, always ensure it includes employee benefits, workers’ compensation, and payroll taxes, as these are too complicated and are backed with penalties in case of errors.
Develop a Reporting and Analysis System
When establishing the accounting process for your startup, don’t just consider the needs of today. As your business grows, its needs will change. And sooner than later, you will witness the demand for CFO services or all-inclusive accounting solutions to prepare important reports that can empower you to make important business decisions.
The final thought
As a startup, if you plan to stay in the long-run, you need a well-designed accounting process that caters to your unique business model and operations. Following these points will help you get ready for that your business is going to through your way.