6 Accounting Tips For Startups

From the moment you hang out a shingle or post a “Grand Opening” sign, your startup business requires a solid infrastructure. This requires a plan for marketing, advertising, merchandising, and — perhaps most importantly — accounting. If you aren’t a number-cruncher, this probably doesn’t excite you as much as the other components of the business, but it’s an essential puzzle piece in the landscape of your startup.

1. Put Someone in Charge.

Regardless of the size of your startup, someone needs to assume responsibility for all accounting matters. If your business is a party of one, that mantle automatically falls on your shoulders.

The person in charge of accounting doesn’t require a finance degree, though it’s certainly recommended as a degree holder is most qualified for a variety of in-house finance roles. At the very least, he or she should know every detail about the finances of the business, from accounts payable and receivable to payroll and expense reports. If the business slips into the red or a discrepancy materializes in the books, the person in charge of accounting should recognize it immediately.

2. Use High-Quality Accounting Software.

Since many small startups lack in-house accountants, accounting software like Sage picks up the slack and improves the business’s overall efficiency. Many different accounting software programs exist, from bare-bones spreadsheet programs to full-service accounting machines.

For example, many programs offer the ability to create custom invoices, track online and in-person payments, generate automated reports, and link the software to the business’s bank account. Some accounting software providers bill by the month for easier budgeting, while others charge annual licensing fees or require long-term contracts.

3. Pay Vendors and Service Providers Promptly.

Debt often ruins personal finances, but it hits businesses even harder, creating a downward spiral of IOUs and demand invoices. When you launch a startup, vow to settle all invoices upon receipt to avoid future complications. To maintain this policy, your business needs a standardized method of tracking invoices. Accounting software offers this functionality, allowing you to process invoices from receipt to satisfaction without any delays.

Avoid paying invoices and bills via credit cards and other debt-generating instruments. Use cash for as many expenses as possible to maintain a healthy debt-to-income ratio.

4. Avoid Over-Hiring.

Many businesses require employees to function. You might need sales representatives, customer service associates, technicians, and other staff members from the start.  However, a skeleton crew offers several benefits. When you run your startup with the minimum number of employees, you reduce operating costs and increase net revenue. This gives you more flexibility in your accounting.  Delegate multiple responsibilities to each employee and create broad job descriptions. Never overload an employee beyond his or her capabilities, but don’t hire staff members to sit at their desks and stare at one another either.

5. Create a Sustainable Budget.

A sustainable budget requires realistic estimations of revenue and expenses. Some expenses, such as payroll and leasing fees, remain static from one month to the next. Others, like merchandise, change over time.

Many startups also incur one-time expenses. If you need equipment, supplies, and other items that will last several months or years, factor those into your initial budget. As expenses and revenue change, update the budget and evaluate new ways to maximize profits.

An underestimated budget might seem healthy at first, but it creates problems down the road. Conduct market research to determine a realistic figure for each category, then update it as circumstances evolve.

6. Research Tax Law.

Nothing sinks a small business budget faster than a big bill from Uncle Sam. From the operating structure of the business to the deduction of taxes from employee paychecks, taxes should take center stage when preparing budgets and projecting cash flow.

Most businesses pay both federal and state income taxes, especially if they incorporate. However, some states do not impose income tax on sole proprietorships, general partnerships, and certain other organizations. Knowing the tax implications for your business allows you to make informed choices about spending and allocating liquid capital.

Your business’s accounting needs depend on the size of the venture and the resources at your disposal. Invest in efficient accounting software to maintain a reasonable budget and to track expenses, then add new resources when your business can afford it.