Accounting for startups: Keys to better business bookkeeping

Despite this common approach, having a robust accounting plan is essential for any startup aiming to thrive. This may involve bringing in a professional accountant or adopting new accounting and bookkeeping software, yet founders should also grasp the fundamentals themselves. Whether completely new to accounting or just needing a refresher, understanding the basics quickly is crucial for the survival and success of a business.

Core startup accounting concepts

Why should startups focus on accounting? 

Financial health is a crucial part of any startup's success. Even if accounting isn't your main focus, it's essential for maintaining financial stability. Accounting data helps spot inefficiencies, manage spending, and is critical when seeking investment or financing. Investors and banks rely on clear financial data for decision-making, making accounting indispensable for any startup aiming for growth.

What is accounting? 

At its heart, accounting is the systematic recording of financial transactions. This includes measuring financial data, processing it, interpreting it, and then communicating it to various stakeholders. For startups, this means understanding how revenue comes in and how expenses go out, which aids in effective strategic planning.

Who handles accounting in startups? 

The responsibility often starts with the founders or outsourced professionals. As the business grows, some startups might hire in-house accountants as part of a larger finance team. Key stakeholders in this process include management, investors, and regulatory authorities. In well-run startups, even other employees may use financial data to improve products and operations.

Accounting methods involve both cash and accrual accounting. Cash basis accounting records transactions when cash is actually exchanged. It's straightforward but doesn't give a complete picture of financial health. Accrual basis accounting, on the other hand, records income and expenses when they are incurred, providing better financial visibility and clarity.

Financial clarity and planning is crucial. Good accounting practices help build business plans and ensure that stakeholders like shareholders and authorities can see the financial health of the business. Accurate records are vital for claiming tax relief and proving legitimate costs.

Clearly, getting your accounting basics right can make a significant difference in your startup's journey.

Key startup accounting documents

The general ledger

The general ledger serves as the main hub for all your company's financial transactions. Each financial event, whether it relates to revenue, expenses, assets, liabilities, equity, profits, or losses, gets recorded here.

• Revenue: Income generated from business activities.
• Expenses: Funds spent on operational costs.
• Assets: Resources owned by the company.
• Liabilities: Obligations or debts the company owes.
• Equity: The owner's claims on the business after liabilities.
• Profits and Losses: Financial gains or setbacks experienced.

A crucial function of the ledger is ensuring debits and credits match at the period's end. If they don't, an error has occurred and must be identified and corrected.

The 3 essential financial reports

1. Balance sheet

The balance sheet offers a snapshot of the company's financial status by listing assets, liabilities, and equity.

• Assets: Includes cash, inventory, and equipment.
• Liabilities: Represents debts and financial obligations.
• Equity: The residual interest in the assets of the business after deducting liabilities.

2. Income statement (Profit & loss statement)

The income statement or profit & loss statement is critical for tracking the company's revenue and expenses over a period. It starts with revenue and subtracts expenses to show net profit or loss.

• Revenue: Broken down by main sources.
• Expenses: Categorised by main areas such as marketing, development, and inventory.

3. Cash flow statement

The cash flow statement details the actual cash inflows and outflows over a period.

• Operating activities: Cash generated or spent on business operations.
• Investing activities: Cash used for buying or selling assets.
• Financing activities: Cash flows from financing actions like loans and stock issuance.

The cash flow statement differs from the income statement as it focuses on when cash is actually received or paid.

Bank reconciliation

Bank reconciliation involves comparing your company’s financial records with bank statements to ensure accuracy. This process helps verify that transactions recorded in the general ledger match those on the bank statement.

• Identify discrepancies between ledger entries and bank statements.
• Detect potential errors or fraudulent activities.
• Ensure all bank fees are accounted for.

Credit card reconciliation

Credit card reconciliation is similar to bank reconciliation but often involves more complexities due to multiple users and numerous small transactions. It ensures each credit card payment recorded in the ledger matches the credit card statement.

• Track all transactions made with company credit cards.
• Match each payment to a specific expense.
• Collect and store receipts for every transaction.

Receipts (or Proofs of purchase)

Receipts serve as proof that a financial transaction occurred. These are crucial for verification purposes, especially during audits or when claiming tax deductions.

• Validate business expenses for tax purposes.
• Confirm transactions with third parties.
• Keep records of purchases, both large and small.

Accounts receivable

Accounts receivable refers to amounts customers owe the company, representing an asset.

• Track outstanding invoices and payments.
• Measure the reliability of incoming funds.
• Maintain a healthy cash flow by managing receivables efficiently.

Accounts payable

Accounts payable is the amount the business owes to suppliers and creditors.

• Record and track all outgoing payments.
• Ensure timely payment to maintain good supplier relationships.
• Manage cash flow by scheduling payments strategically.

Tax

Tax accounting involves preparing and filing taxes to comply with regulations. This includes keeping accurate records of all transactions, income, and deductions.

• Ensure compliance with local and federal tax laws.
• Keep detailed records for both income and expenses.
• Plan and estimate tax payments to avoid unexpected liabilities.

Understanding these key documents and data points is essential for maintaining accurate and comprehensive financial records. They help in tracking the financial health of the business, making informed decisions, and ensuring transparency and compliance with regulatory requirements.

However, manually managing these documents and reconciling accounts can be time-consuming and error-prone, leading to frustration and potential financial losses for startups especially when they are at their earliest stage. Thriday is designed to be helpful even at the earliest stages. It can help you establish good financial habits from the start, track your initial expenses, and generate simple reports to share with potential investors.

Get to know more of its features here.

6 strategies for improved bookkeeping in startups

1. Streamline receipt collection

Collecting receipts is crucial for bookkeeping and tax compliance. Make this process efficient by using mobile apps that allow employees to photograph receipts immediately upon purchase. Another effective method involves setting up a dedicated email address, like receipts@company.com, where digital receipts can be forwarded. This simplifies the process for everyone involved and ensures that receipts are recorded accurately.

Thriday, an accounting and invoice software in Australia

2. Go digital with documentation

Modern accounting should be paperless. Digitise receipts, invoices, and bank statements to prevent loss and enhance accessibility. Numerous tools can convert physical bank statements into digital formats and extract relevant data for easy use in Excel. Storing documents in the cloud means they can be accessed from anywhere and categorised for quick retrieval. This also reduces manual data entry, saving time and reducing errors.

3. Steer clear of company credit cards

Reconciling company credit cards can be cumbersome. Employee debit cards are a better alternative. These cards display the employee's name and allow for setting spending limits and rules. This approach improves real-time tracking and identifies who made each payment, simplifying expense management and making it more transparent.

4. Opt for smart expense tools

Manually assigning transactions to different expense accounts in the general ledger can be time-consuming. Utilising payment methods that automatically assign expenses based on suppliers can streamline this process. For instance, payments to Salesforce can be automatically allocated to the sales budget. These automated systems reduce the repetitive task of manual entry, making bookkeeping more efficient.

5. Embrace automation

Automation in accounting reduces the time and effort involved in manual data entry and transactional processes. It can handle various tasks, from generating financial reports to reconciling accounts. Automating these processes means fewer errors, more accurate financial records, and more time for strategic planning.

6. Minimise errors from the outset

Human error is common in repetitive tasks, including accounting. Minimising manual handling of data through automation and digitisation significantly reduces the chances of mistakes. Implementing systems where employees use smart payment methods and digital document management can lead to fewer errors and save time during financial reconciliations. This ensures more accurate records and efficient financial operations.

By incorporating these strategies, startups can streamline their accounting processes, reduce errors, and focus more on growth and strategic financial planning. Utilising technology and smart practices makes it easier to maintain accurate financial records and stay compliant, setting a strong foundation for future business growth.

Frequently asked questions

I have no accounting background. Can Thriday help me get up to speed?

Absolutely! Thriday is designed with non-accountants in mind. It simplifies complex accounting concepts and provides easy-to-understand financial reports and dashboards. Plus, our support team is always ready to assist you with any questions you may have.

What role does technology play in modern startup accounting?

‍Technology, through accounting software like Thriday, helps automate tasks, provide real-time financial insights, and enables data-driven decision-making.

Why is accounting important for startups, even if it's not their core focus?

‍Accounting helps maintain financial stability, identify areas for improvement, and is crucial for attracting investors and securing funding.

Establish effective startup accounting processes with Thriday

To streamline startup accounting, businesses can benefit from using digital tools and automating their processes. Modern accounting software like Thriday helps non-accountant working professionals. Such tools provide a structured approach, allowing more efficient handling of tasks like creating financial reports.

Important steps include:

• Digitise: Convert paper records to electronic forms. Thriday offers a seamless solution for digitizing your financial documents. With its intuitive mobile app, you can capture receipts, invoices, and other paper records using your smartphone's camera. The app then intelligently extracts key data from these images, automatically categorising and organisng them within the system.
• Modernise: Thriday replaces outdated manual bookkeeping methods with a cloud-based platform that streamlines financial management. Its user-friendly interface, automation features, and real-time data access empower you to make informed decisions without the need for extensive accounting knowledge. No more spreadsheets or clunky desktop software – Thriday brings your accounting into the modern era.
• Automate: Implement automation for routine tasks. Thriday takes automation to the next level, freeing you from tedious manual tasks. It automatically reconciles bank transactions, categorises expenses, generates invoices, and calculates taxes.

By adopting these practices, startups can make better business decisions through accurate resource allocation. Thriday goes beyond simple data tracking. It leverages artificial intelligence to analyse your financial data, identifying trends, potential risks, and growth opportunities. This empowers you to make proactive, data-driven decisions to optimize your business strategy.

More than that, Thriday doesn't just tell you where your money went; it predicts where it's going. Its advanced cash flow forecasting tool helps you anticipate upcoming expenses and income, ensuring you always have enough working capital to fuel growth. Join for free here!