As with any type of business, proper management of finances, and having a dedicated team or staff to handle said finances, is a critical component to long-term success.
Statistics show that 20% of new businesses don't make it past their first year and only 30% of businesses will remain in business 10 years after their launch. Taking the necessary steps early allows business owners to have accurate and efficient accounting and help prevent potential cash flow issues that are to blame for many business failures.
Additionally, having access to strong and reliable reporting can help point the way to significant growth for a start-up. With these few tips, a start-up can set themselves up with a strong base for their accounting from day one. It is also never too late to implement these tips for an existing business.
Develop A Budget
A budget is a very important aspect of a new or existing business. Setting plans and identifying opportunities that will keep the business operating, as well as accelerating growth, all fall into the budgeting process.
In addition to creating an initial budget, the budget should be adjusted and referenced frequently with rolling forecasts. A useful tactic for finance teams is to utilize rolling forecasts throughout the year.
Businesses that regularly visit their planned budget throughout the year, to check-in and compare where they are, to how much of the budget was allotted allows everything to be kept in check and an easier process when budgeting for the following year. Rolling forecasts typically extend 6-12 months into the future to give businesses the ability to better allocate resources and prepare to manage through any disruptions.
Keep Accurate Business Records
Keeping accurate records is crucial for running a business. Reliable accounting software like QuickBooks or NetSuite can assist in automating much of the recordkeeping process, but there is still some responsibility on the owner and employees for accurate data entry.
The general rule of thumb for business records is that they are kept for at least 7 years for defending tax audits, lawsuits, and potential claims. Reporting on things like expenses, cash flow, and maintaining receipts is important for a start-up to stay organized.
Get A Bookkeeping Software & A Bookkeeper
Not every business owner is an accounting professional, and they shouldn't have to be. However, a start-up company is going to reach a point in its life that the bookkeeping must be managed by a bookkeeper to stay up-to-date and accurate.
At the end of the day, the accounting and bookkeeping functions of a business are what ensure business owners have the information they need to make sound business decisions. This is why hiring a full-time bookkeeper is a worthwhile investment for a new or existing business.
There are a few options when it comes to hiring a bookkeeper. A full-time staff member of the business, an outsourced in-person bookkeeper, and an outsourced virtual bookkeeper. Both in-person options have the benefits of exactly that - being in-person. However, these options will often cost more and lack the flexibility and scalability that an outsourced virtual service provider can typically offer.
An outsourced company like AccountingDepartment.com provides a full accounting takeover that handles all of the business's accounting to ensure efficient and accurate bookkeeping, reporting, and more. Additionally, there are infinite options to scale as a start-up (or existing) business grows, removing the need to hire more in-office personnel, training, etc.
Choose An Accounting Method
Every start-up must pick a method of accounting to abide by from the start. Businesses must choose between cash basis or accrual basis accounting. Most companies go with accrual accounting, due to the Generally Accepted Accounting Principles (GAAP).
The primary difference between cash basis accounting and accrual basis accounting is in the timing of the recognition of expenses and revenue. The cash approach recognizes expenses and revenue much faster than the accrual method. The accrual approach is more focused on predicted expenses and revenue down the line. Cash basis accounting is centered on recording transactions when cash changes hands meaning it is that much easier to implement.
Plan For Major Investments
By closely tracking expenses and revenue in a start-up business, the best time for large investments can be identified and steps can be taken for freeing up the capital or establishing the credit needed to cover the costs.
Good, up-to-date financial reporting and dashboard visibility makes this a much easier task. Building a healthy business credit should be a priority from the start as well. It will assist with securing business credit cards, loans, and more down the line for larger investments.
Try To Reduce High-Cost Expenses
Some of the largest expenses for a business are labor and inventory. To reduce labor costs, consider outsourcing where possible, for various facets of the business. Outsourcing may be cheaper in many cases due to paying hourly rates, rather, and a 40 hour/week salary and they do not require any training or benefits. Outsourcing an accounting department and/or bookkeeper can be an initial step to reducing a high-cost expense.
AccountingDepartment.com is an outsourced accounting, bookkeeping, controller, and advisory services company. With over 160 full-time CPAs and other accounting experts on staff, AccountingDepartment.com has the solutions and expertise for businesses in all industries. The company’s mission is not just to do your books but to help you find ways to control costs, increase cash flow, and reduce accounting hassles while using the leading technology.
To learn more about what we offer and how to get started, contact us now to schedule a consultation.