Top 5 Bookkeeping Tips for Startups

Myth: Startups can get by without solid bookkeeping practices.

Reality check: You haven’t started your business to get by. Overlooking small financial details can quickly snowball into significant roadblocks, preventing you from reaching your big goals. Your startup deserves more than just “fine”: you need a solid business structure for sustainable growth and success. Professional bookkeeping and accounting services are crucial in setting up accounting systems and keeping your financial statements in order.

Here are the top five bookkeeping tips every startup should know.

1 – Use the Accrual Accounting Method for Accurate Financial Reporting

As a startup, you can choose between accrual accounting and cash accounting. Cash-based accounting tracks income and expenses when received, making it more straightforward for small businesses. However, accrual accounting provides a more accurate picture of your startup’s financial health.

With the accrual accounting method, you record revenue and expenses when earned or incurred, regardless of when the actual cash transaction occurs. Imagine a small bakery receiving an order in March to supply a local cafe with custom cakes for its summer menu. The bakery completes the order, delivers the cakes in June, and then invoices the cafe. The revenue from this contract will be recorded in June when the cakes are delivered, even though the payment might be received later.

Benefits of accrual accounting:

It provides a true reflection of your financial situation.
If you plan to attract investors or expand, they will expect detailed financial reports using the accrual method.
It helps better track receivables and payables, crucial for managing cash flow in a growing business.

Adopting accrual accounting from day one will better equip your startup for future financial reporting and investment opportunities.

2 – Consult a Specialist When Choosing Your Accounting Software

While it’s possible to research bookkeeping software independently, the number of variables and options can make the process overwhelming and time-consuming. On the other hand, a professional bookkeeper can streamline this process by evaluating your business needs, recommending suitable features, and assisting with setup and training.

Sure, bookkeepers often have their preferred accounting software, even if most are proficient with various packages. The good news is that this preference can be advantageous, as their familiarity can enhance the efficiency and accuracy of your bookkeeping.

If you decide to tackle this on your own, though, here are some key factors to consider:

If your business is straightforward with minimal transactions, you’ll need a basic bookkeeping solution that tracks expenses and revenues.
If you deal with physical products, you’ll need an accounting system that includes inventory management to track stock levels, orders, sales, and deliveries.
If you have employees, you’ll need a solution to handle payroll processing, including calculating wages, withholding taxes, and ensuring compliance with labour laws.
To streamline tax preparation, you’ll need accounting software that generates the necessary reports for tax filings and ensures compliance with all regulatory requirements.
If your industry has unique bookkeeping needs, you’ll need software that can accommodate specific needs, such as industry-specific reporting, compliance, or multi-currency transactions.
As your business grows, you’ll need a bookkeeping solution that can scale with your startup and offer additional features and integrations as needed.

3 – Track Financial KPIs to Monitor Your Cash Flow

Accurate records of your financial transactions ensure compliance with financial regulations and help you evaluate your business in real time.

To make the most out of this data, prioritise the KPIs that truly matter to your startup’s success.

Monthly Recurring Revenue (MRR). It provides a steady measure of your financial health and helps forecast future income. It’s particularly crucial for subscription-based businesses.
Payback Period. It helps evaluate the efficiency of your investments and plan future financial strategies.
Operating Cash Flow. It indicates whether your core business activities generate enough cash to sustain operations and fund growth.
Working Capital Ratio. It ensures you can cover short-term liabilities with short-term assets, maintaining smooth operations.
Customer Acquisition Cost (CAC). It helps you budget for marketing efforts and determine the ROI of your acquisition strategies.
Customer Lifetime Value (CLV). It shows a customer’s long-term value and informs strategies for customer retention and upselling.
CLV/CAC Ratio. It helps measure the return on acquisition investments and suggests that your business model is sustainable.

Keep accurate financial records to gain valuable insights into your startup’s financial health. These records support informed financial planning and help you build trust with potential investors and venture capitalists.

With these KPIs, you can also monitor the difference between revenue and cost of goods sold (COGS) to evaluate profitability.

4 – Set Spending Limits to Consolidate Your Financial Health

Balancing restrictive and lenient expense policies maintains financial discipline while supporting business operations effectively.

Begin by defining the categories of business expenses allowed, such as meals, travel, and accommodation, and set clear boundaries on what constitutes reasonable costs in each category. For instance, specify the acceptable class of travel and the standard for accommodation based on business needs and industry standards. This helps prevent misuse of company funds and provides employees with a clear understanding of reasonable business-related expenses.

Establish a straightforward process for employees to submit their expenses, including the necessary documentation, such as receipts and justifications. Designate specific approvers responsible for reviewing and approving these expenses to ensure all claims are legitimate and adhere to company policy.

5 – Stay Updated with Changing Rules

Financial and tax regulations can change due to various factors, including new legislation, law amendments, and regulatory focus shifts. These changes can impact your business, from tax filing procedures to reporting requirements and financial operations.

If you can’t keep up, your business can face fines, legal issues, and potential damage to its reputation.

Subscribe to reputable financial news sources and regulatory updates to get timely and accurate information. Consider following government websites, industry publications, and professional associations offering financial updates and analyses.

Collaborating with a professional bookkeeper or accountant who stays current with financial regulations can be incredibly beneficial. These professionals dedicate time to understanding and interpreting new laws, ensuring that your business remains compliant. They can offer tailored advice on how regulation changes impact your specific business operations and guide you in implementing necessary adjustments.

BONUS TIP: Hire a Professional Bookkeeper

If you hire a professional bookkeeper, most of these tips are easy to implement in your startup’s fast-paced workflows. Additionally, they can help you understand the tax implications and responsibilities associated with your business decisions. Plus, you’ll have a trained eye for assessing net income relative to revenue, giving insight into overall financial health.

While having a solid bookkeeping system and investing in top-notch cloud-based accounting software can significantly aid your financial management, nothing compares to the value of experience and an expert eye for keeping your records in order. A dedicated bookkeeper can streamline your financial processes, ensuring that your business remains compliant and efficient without you having to navigate the complexities alone.

We are here to help. With extensive experience working with startups, we understand the legal requirements and the practical challenges of building a business. We follow the rules meticulously, yet we recognise that a startup’s journey of a startup is rarely straightforward. Our flexibility and commitment to going above and beyond will help you consolidate and grow your business.

The benefits of SmartPA have exceeded expectations. Working with Tracey and Fay has saved me alot of time and hassle. The have filled me with considence at each step that my company's payroll is in good hands and being dealth with by experts in the field (which i most certainly am not) leaving me time and energy to do what i do best.

SmartPA are exceeding my expections in support. They have such a great network of diverse skills that no request is too difficult. Such a great service that you can be so flexible at SmartPA. Delivered with how your service has improved my working week. Highly recommended.