Bookkeeping and accounting, are numbers-related but are not quite the same thing.
Both of them are important to every business’s success, but as a startup, you may have an additional requirement to keep good records. If you have investors, they’ll require that you give financial reports. And if you are trying to take a business loan, you’ll require clear and easy-to-read financials so that potential investors can make an informed decision about investing in your vision. The more organized your books are, the easier it is to file your taxes. You will need to gather all financial records and organize them by category.
Bookkeeping is the method of tracking all financial records, mostly income and expenses. The term goes before to the olden days when business owners recorded finances in paper books.
One thing you should not do is only opening your business’s books when you’re forced to, such as at tax time or when targeting a new investor. Here’s a bookkeeper-recommended checklist for keeping accurate books:
Record all transactions into your bookkeeping software or Excel spreadsheet
Even if you combine your financial accounts with software, ensure to record everything else, such as cash transactions.
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Categorize your transactions
Whether it’s that trip to Staples for office supplies or to pick up a new banner for your tradeshow booth? These two items are categorized separately on your tax return, so enter the category while transactions are fresh in your mind.
File or digitize receipts
We suggest filing (or digitizing) your receipts and old invoices weekly. Else, you’ll lose them, and might not be able to prove some expense deductions if you get audited. However, digital bookkeeping systems also depend on being accurate and clear. You can also hire bookkeeping services to help you out.
Mitigate your bank accounts
This step is important and protects you against any income or expenses slipping through your fingers. Bank mitigations can be tricky until you get into the habit. Small businesses with more than one employee or looking to apply for a loan should also use double-entry bookkeeping. This system is a more accurate and complete way to keep track of the financial situation of a company and how fast it’s growing.
Prepare and send invoices (if applicable)
Be prepared about sending invoices as soon as you can. Maintain accurate records of your work. In order to invoice, you need to understand what work has been carried out. It’s hard to remember at the end of the month what did you did at the start of the month, so you require to track work as you go along.
Pay vendors and other bills
The key functions for paying the bills are entering the bills into the accounting system and preparing the checks for paying the bills. Then, signing the checks, sending out the payment to the vendors, and reconciling the checking account Just get it over with. Late payments could also impact your business credit score.
Review outstanding invoices
Unpaid invoices can start out as just trouble and then turn to threaten the existence of your business. The break-in cash flow might suggest that you can’t pay employees, suppliers, and vendors and that you won’t have the money to manage your business operational. See who hasn’t paid you yet, and follow-up. A simple accounts receivable process is the bloodline of your cash flow.
Review your financial standing
Any business’s prime question is “Do I have enough money to keep functioning?” Analyzing how much cash you have in the bank, and how much cash you expect to arrive, will tell you either “Yes,” or “time to make certain changes.”
Hold Regular Meetings
If you are a small startup, these meetings could only be with yourself. But, if you are operating a larger business, have financial meetings regularly with anyone who might have information on how the money side of the process could be streamlined.
Work with a Pro
Unless you are educated in the world of accounting, you will require to have a pro on your side right from the beginning. You should be able to find a CPA who will work on a contract basis to perform the accounting work. You can surely take the DIY approach to things like daily journal entries, but tax filings and other relevant matters should be managed by a pro.
We suggest that you assign some dedicated time for managing your business’s financials. Tracking good records also means that your life will be simpler when it comes to quarterly and annual income taxes for your business. And lastly, with enough knowledge of your books, you’ll be guarded to make good financial decisions on behalf of your startup.