Effective Accounting Practices for Startups

Startups: Accounting Practices

Figure out the accounting procedures that you will use at the very start. Have a bookkeeping method that is forward thinking, so that you’re business growth doesn’t have to wait while you refigure your accounting methods

Selecting a bookkeeping Software Package

In beginning your company you may use a simple spreadsheet to keep pace with your business expenses and income. At some point, though, you might want to think about adopting a small-business accounting software package like QuckBooks or Sage Peachtree to manage your company’s financial transactions. As a new start-up grows, the paperwork involved between paying expenses and collecting income can prove too tedious without the help of a accurate and reliable financial database. A good accounting software package will also help make tax preparation easier, keeping payroll, and inventory record keeping.

Anticipate your accounting needs. There are packages that are specialized for project accounting, and there is accounting software that caters to real property/real estate (like fixed income accounting). Specialized bookkeeping software is often times more costly than the more generic software packages which are excellent for sales of goods, but if you have an idea of where your business is headed, you could select the ideal accounting software at the very beginning can save time and money in the future.

Which Accounting Method to Choose

Big corporations are required to adhere to the GAAP, or the Generally Accepted Accounting Principles. Small Businesses, alternately, can exercise more independence in how they track financial records. When you are a startup owner, you may prefer the cash method of accounting,

Some more advanced methods of accounting, such as the accrual method of accounting, may better serve you as your business grows. The accrual method of accounting records expenses and income upon invoice, rather than waiting for cash to change hands. This bookkeeping method provides you a more expansive insight into you finances.

As far as taxes are concerned, if you sell, purchase, or produce merchandise, there are rules as to when you need to use the accrual method of accounting.

Creating a Budget

You’ll also want to make certain that the accounting software you choose allows you to design a budget.

Compare your performance

And you want to choose an accounting software that allows you to compare the current year financial statement with those of the previous year. This should help you set goals, gain insight, and see trends.

For example, if your revenue increased by 10-percent in 2011 over that from 2010, but, at the same time, your expenses increased by 30-percent, this might suggest there’s some inefficiency in your business model. Are you investing in assets with the greatest return on investment? Or, did you forget to provide some invoices? On the other hand, if your revenue increased by 30-percent for 2011 over that from 2010, but your expenses only increased by 10 percent, this suggests that your business model could be hyper-efficient. Make certain all expenses recorded? Were some revenue items duplicated? Or did you truly manage to increase your return on investment? It is important to determine the causes behind these trends in order to establish an accurate picture of your business’s performance and to make reasoned financial decisions.

Thanks for reading, and here are a few more resources you might find useful:

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