Accounting for Startups: What to Consider?

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November 1, 2022 Business

Startup owners often wear many hats and play several roles within their businesses. They may assume the position of a manager, team builder, or even an accountant. Unfortunately, a slight error in the latter role can result in grave consequences for the company.

Therefore, understanding accounting is imperative for businesses that wish to manage these responsibilities without a third-party accountant. Luckily, businesses can consider a few accounting tips to make financial tracking easier for the company. By setting up a system and utilizing accounting resources that work for the business, startups can ensure it stays on top of their finances to keep the operations running smoothly.

Startup Costs

Starting a new business is exciting, but keeping track of all expenses is essential. In doing so, the company can take advantage of IRS deductions for startup and organizational costs.

According to the IRS, businesses can deduct up to $5,000 in eligible expenses yearly when it becomes operational. Qualified expenses include things like marketing, legal fees, and office supplies.

If startup costs exceed $5,000, they’ll need to amortize the expenses over 15 years. So, if a company spends $10,000 on startup costs, it can deduct $333 per year for 15 years. Tracking the expenses from the start will help maximize the deductions and save money on taxes.

You can use online accounting services to help keep track of these expenses and ensure they are properly recorded. If you have a partner or investor who is putting money into the business, it’s important to track those contributions as well.

Payments Received

For startups, a customer paying their invoice is always a sign that the business is running smoothly and that the customers are happy with the products or services. However, to keep track of payments, it’s essential to have a system to record them.

Whether customers pay by check, cash, credit card, or ACH transfer, businesses must attach a payment record to their invoice and file it accordingly. A business can maintain digital records in the customer’s file if it is paperless. By tracking payments properly, the company can stay on top of its finances and keep the business running seamlessly.

Payroll

Payroll can be daunting for any organization, but startups that do not keep track of these processes struggle in the long run. Therefore, businesses must maintain a record of their payment system, even if they only have one employee. This includes the management of employee personnel records, along with retaining employee time information. This also means collecting all related payroll forms, including 941s, W-2s, and 1099s.

The best way to manage payroll is to subscribe to a payroll service that does most of the work. However, if a firm does it independently, it must ensure all the processes are handled proficiently. Inaccuracies in financial and payroll management can result in heavy penalties from the IRS. Therefore, any organization with employees needs to understand all the ins and outs of the process. By taking this initiative, they can ensure their business stays compliant with all applicable laws and regulations.

Invoices

One of the first things an entrepreneur should learn to do is create an invoice. Accounts receivable tracking is essential for any business that wants to get paid in a timely manner.

There are a few different elements that should be included on every invoice. The first is the date. This lets the customer know when the service was provided or when the product was shipped. The next is a description of the delivery. This could be a list of products or a brief description of the services rendered. The third element is the price. This should be clearly stated so there can be no confusion about what the customer owes. Finally, the invoice should include contact information for the business in case the customer has any questions.

Entrepreneurs can ensure they get paid for their products and services on time with a well-crafted invoice.

Bank Statements

Anyone who has ever balanced their checkbook knows that reconciling bank accounts is essential to keeping track of finances. However, in the age of online banking, many businesses assume that they can simply omit this step and still stay on top of their spending.

Unfortunately, reconciling bank accounts is still crucial. By settling monthly statements, businesses can ensure that the balance in the general ledger is accurate and that all bank fees are accounted for.

Additionally, owners may be able to find errors that the bank has made, such as incorrect charges or deposits. While it may seem tedious, reconciling the bank account is important to maintaining financial stability.

Credit Card Statements

Reconciling credit card statements is just as crucial as reconciling bank statements. Credit card fraud is a risk and can sneak up on the business in the form of accumulated small charges. Considering this, startups must review their credit card statements and have a justification for each account. This is particularly important if multiple employees use a company credit card.

If an organization does not have a justification for the charge, it must call the credit card company to inquire about the details. The business must file a dispute immediately if it has not made a purchase. This initiative can keep the organization protected from fraudulent activities.

Wrapping Up

A startup needs to stay ahead of its accounting and bookkeeping processes. An error in the approach can cause severe problems for the company in the long run, and the business may be forced to shut down if there is an error in its accounting records.

Taking this into account, organizations must track startup costs, keep a record of their receivables, and proficiently manage their payrolls to certify accuracy in accounting. Additionally, business owners must create accurate and detailed invoices.

Lastly, startups must thoroughly review their bank and credit card statements to highlight any incongruence in the company’s spending. This will allow the firm to keep itself protected from credit card fraud. These measures ensure the startup has the proper financial foundation to support long-term success.