If you are launching a startup, then kudos to you! Startup business owners need to be a lot of things from sales, bookkeeping, staffing, designing, stocktaker, chef, bakers and candlestick makers! You wear many hats as a startup owner, and we have not even mentioned accounting yet! However, accounting is one of the most important; with over 30% of new businesses failing within the first year and 60% fail within their first three years, good accounting practices must be followed from day one to help prevent common pitfalls that new businesses fall into.
Why Is Accounting Important for Startups?
Often accounting is left as an afterthought or something that startups do not need to worry about – which, in our opinion, is a big mistake. Startup accounting can be critical since it’s likely that you’re operating your new business on a tight budget. Working with a specialist startup accounting firm like the team here at RJF Accounting can help get your business off on the right footing. A good accountant will help your startup to:
- Determine the best business structure.
- Establish a bookkeeping system for your business.
- Get your records in order from day one.
- Ensure that the proper allowances are being applied.
- Keep payroll under control.
- Keep strict forecasting reports.
A good startup accountant will be able to help you keep your new business on track from day one, and they can spot things often missed by the founder or even make tough decisions that need to be made to keep the business afloat.
Five Accounting Basics Every Startup Needs to Know
There are a few accounting basics that every startup needs to know about and follow if they do not want to become just another failure statistic. We have listed five of them below.
Separate Business and Personal Transactions
Depending on how you set up your company structure (Limited/Sole Trader) will determine how you need to do this. If you are launching as a sole trader, opening a separate bank account for your one is advisable. This makes things a lot simpler to track, preventing errors and mixing up personal income from business income. Cash management apps such as Mettle and Tide offer sole trader accounts, making this more straightforward, as some leading banks such as Lloyds and Starling.
If you are going down the Limited Company route, you must open a separate business bank account. This can be with a traditional high street bank or new online challenger banks such as Starling.
Budgets & Reporting
Budgets and reporting are boring – we get it! However, they are the lifeblood of any startup! Knowing where the business funds are being spent and what return they are offering is imperative to its success. Maintaining your financial records can be a slog, where a bookkeeper helps, and a good accountant will help you format budget reports and other financial records. This is paramount to keeping your business on track and if you wish to attract investors or sell the business later.
Business expenses, be they paid for personally or by the business, all need to be logged correctly. This helps keep you compliant with HMRC on expenses and taxes and ensures that your business is not spending more than it is making. Cloud accounting software such as Xero and FreeAgent helps keep this process simple, but if they are not for you, then a good bookkeeper will be able to help too.
Keep On Top Of Income
If you are a new business and invoicing clients for the work, you must keep up with accounts receivable. Allowing invoices to go past due at any time could severely impact your bottom line and even, in extreme cases, cause your startup to run out of money. It is always best practice to have strict terms and conditions and payment terms, be it via a contract or written agreement. This allows you to enforce these terms and keep the cash flow of your own business flowing.
File Tax Returns On Time & Correctly
A missed or late tax return could be costly for your startup, and the penalties can be steep. More importantly, they need to be correct – as any mistakes seen as you trying to avoid tax or deliberate by HMRC could result in a substantial financial penalty. HMRC penalties can sometimes double the amount you owe to them, so it is essential to ensure that your returns are filed on time and correctly.
How Can We Help?
Here at RJF Accounting, we are startup specialist accountants; this means we know exactly what is needed from us to help your startup get going and keep going. We offer services that can help your startup, including:
- General Accounting
- Cash Flow Management
- Growth Planning
- Raising Finance
- Investor Relations
- Management Accounting
- Outsourced financial director
If you need advice on your new business or are looking to hire a startup accountant, call the team today on 0161 5040629 or drop us an email at email@example.com to see if we can help you get your business finances. We are open Monday to Friday, 9 am – 5 pm!