Accounting will prove to be a large part of the process of a startup. In comparison, it is not a strict rule to focus large amounts of time and energy on accounting in the early stage of a business. Failure to properly manage and keep track of accounting can often cause many issues later, further down the line.
Accounting is definitely a lot of effort, work, strategy, and scaling. So is it worth all that effort for a startup?
Absolutely, Yes, for startups with a high growth rate that raise substantial capital, management needs access to high-quality financial statements and proper bookkeeping right away to promote a well-functioning business. A company with proper bookkeeping isalso readily prepared for an IRS audit.
Below are a few startup accounting and record-keeping tips precisely for startups. You are learning more about budgeting, taxes, record keeping, and all the things you will want to know when dealing with accounting for startups.
Related: Form 8974: Complete Guide
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Table of Contents
Does Your Startup Require an Accountant?
An honest answer is more like providing excellent advice without an exact yes or no answer.
Yes. Getting an outstanding tax accountant and starting a business relationship with them from day one can set you on the right track. Then hiring a bookkeeper to help with paperwork ensures you can keep up as the business grows.
Typically, you might not feel you need a full-time accounting department because most of the basic needs can be handled by a part-time bookkeeper. They can easily record transactions and close the books each month with minimal time spent.
A bookkeeper can focus on processing and recording transactions and work on invoices, receivables, payments, and other essentials. As your startup grows, however, there will need to be a more considerable degree of accounting proficiency.
Overall, only a very small percentage of startups did not require a monthly accountant. The other 90 percent of businesses, however, required an accountant’s help and needed one right away. Being prepared seems like the better option here.
Maybe you do the accounting yourself and don’t know why using a legit CPA for a startup tax return is excellent advice. With that in mind, let’s take a look at what makes an accountant so valuable in a startup.
What You Should Look for in A Good Startup Accountant
Most busy Startup CEOs and founders don’t have time to proof their books. A Startup will require more assistance to reconcile the new accounts. A successful startup needs a trusted advisor who is in tune with their personal vision. A professional person is available to answer questions and update numbers while you do your job. An accountant is available to put up the correct systems for a high-growth company.
When choosing a startup accountant, find an accountant with Experience, Low time commitment, Reliability, Accuracy, Speed, and Expert Advice. Try Tax Robot today!
WHAT IS GAAP FINANCIALS, and DOES YOUR STARTUP NEED THEM?
GAAP refers to Generally Accepted Accounting Principles, an essential “playbook” used in the United States that puts accountants on the same thought process. A high-growth startup does actually want as close to GAAP financials as absolutely possible.
Good Accounting Saves Money
Founders who do not hire accountants tend to find that poorly kept books can end up being way too expensive for many different reasons. Here are a few of the reasons why good startup accounting matters to companies in their early stages:
- If you realize where most of the money is going, you can manage costs more efficiently, control the burn rate, and present well to investors.
- A CPA (Certified Public Accountant) can help you ensure you are not overpaying vendors and collect all of your revenue earned.
- Well-taken care of books means you can move more quickly during M&A and VC due diligence.
- It allows you to share your financials more quickly with strategic partners to promote confidence.
- Solid record-keeping keeps your burn rate lower by capturing tax credits.
Many startups choose to outsource their financial reporting and management functions elsewhere. They do this strategy to cut costs and more easily locate and hire professional accounting and finance services.
The Importance of Budgeting
All startup companies should budget as part of their initial accounting work. Budgeting will help bring accountability to the organization and aid in measuring things by how they actually are opposed to expectations. Budgeting also helps you plan your cash flow and cash-out date and ensure you are hiring adequate staff properly.
Best of all, budgeting can prevent early overspending and help you get the business funding you might require.
The Value of Record Keeping
Accurate record-keeping, also known as “bookkeeping” in the world of accounting, is essential because it keeps track of how the startup is growing revenue and where the majority of its cash is spent. Just some of the benefits of good record keeping are:
- Tracks your deductible expenses
- Monitors the business progress
- Preparation for your tax return
- Identify income sources
- Prepares financial statements
Hiring a full-time accountant, even for an early-stage company, always prepares you for the IRS and tax season. It won’t be so bad when you are organized from the very beginning, and keep good records and know what documents are required.
Payroll taxes are taxes that ALL companies with employees pay, even early-stage companies. With proper accounting, there are massive tax credit breaks that any company can take advantage of.
Here at TaxRobot, we can help you find the highest possible tax credit amount for your early-stage business. TaxRobot.com will help with audit-proof paperwork without missing a step. With over a decade of combined years of tax consulting experience for large firms.