Accounting is one of the most important foundations of any startup. In this article, we’ll go over all the basics of startup accounting to help you get started on the right foot.
What Is Startup Accounting?
Startup accounting is the process of tracking and reporting your company’s financial status.
This process is as simple as it is vital. Accounting helps you track your company’s vital financial information, analyse it and make business decisions around it.
In addition to helping your company stay afloat, accounting can also help your business grow. You can use it to track your business’s performance and make strategic decisions for its future.
Accounting vs. Bookkeeping
One of the first things to understand about accounting is the difference between accounting and bookkeeping.
Bookkeeping is a type of accounting. It’s the practice of tracking transactions and recording them in the company’s accounts.
Bookkeeping is typically handled by a bookkeeper who works for your company. Their job is to make sure transactions in your business are recorded and reported correctly.
Accounting, on the other hand, is a broader term. It encompasses everything that happens in your business: the revenue you earn, the expenses you incur and the transactions your business makes.
The two terms aren’t that different. But they do have some distinct differences:
Bookkeeping is more limited in scope, usually focusing on transactions and accounting.
Accounting is broader in focus but is also more independent of how much bookkeeping your business does.
Bookkeeping is usually done in-house, while accounting can be outsourced.
How to Accounting Works for Startups
1) Choose a Business Entity
First things first: you have to decide what business entity to register your company as.
Do you want to form an LLC? Go C Corporation? Or maybe you’re interested in a sole proprietorship or a nonprofit organisation.
There are lots of options here, so if you aren’t sure which option is best for you, check out our guide to choosing a business entity for more information.
2) Hire an Accountant and Set Up an Office
Once you’ve decided on an entity and registered your business, it’s time to hire an accountant.
Finding an accountant for your startup is a tricky process. If you find one you trust, you’re lucky—but there’s no guarantee that they’ll work well with your startup or that they’ll be the right fit for your business.
You can, however, narrow down your scope a bit.
3) Choose an Accounting Method
The type of accounting method you can use is dependent on your business entity.
Sole proprietorships, for example, have three options: cash, accrual, or modified cash. Owners of sole proprietorships can choose whichever option works best for them.
4) Keep Track of Your Financial Records
Next, you need to track the financial records of your business.
If you run a one-person operation, this will be pretty easy. If you have employees, it will be more difficult.
But keeping a record of your transactions is vital. You’re going to need it to report to the government and to your customers (if you’re a service-based business).
As a startup, having a basic understanding of accounting and bookkeeping is vital. It helps you keep your business afloat and make strategic decisions for your business’s future.
If you're looking for accountant services online to help you get started with your business, The ECommerce Accountant is here to help. We provide accounting and bookkeeping services to help build your foundations early on. Get in touch with us to learn more.