The need for Accounting for Startups

A startup is an organization that is controlled by one or more entrepreneurs and aims at introducing a new product or service to the market. Usually, founders fund in the beginning for setting up a startup. They invest a certain amount of time and money in research. In most cases, young entrepreneurs are involved in the process. So, as the startups don’t have a strong background at the initial stage of operations, bookkeeping becomes crucial for them.

Here are some of the reasons why book-keeping is crucial for startups:

1. Organized accounts

An organized record of financial transactions done by startups plays an essential role in tracking their income and expenses and it can be accomplished only by bookkeeping.

2. Timely preparation of financial results

With bookkeeping, it becomes convenient to prepare the financial statements (Balance sheet, Cash flow, Profit and Loss Account, and Fund flow statements).

3. Better overview of the business

Bookkeeping gives an overview of the business from time to time and thus, helps startups to determine their current situation. 

4. Future budget planning and action

Bookkeeping is about preparing organized accounts, which helps the startups to plan their future budget. When proper accounts are managed from time to time, financial transactions become transparent. Startups prepare an action plan for spending their money and thus  All the money earned or spent becomes clear accordingly.

5. Analysis and better decision making

When startups choose accounting services, they do it to determine the financial data like profit margin, purchase, income, expenses, sales, vendors’ details, taxes, etc. They determine this data and make decisions that are fruitful for them. They can react quickly as per market demand if they are aware of their financial position.

6. Better tracking of growth

For startups, it’s very essential to track their growth as they are in their first stage of operations and they are investing a certain amount of time and money. So, bookkeeping gives them detail in regard to profit and growth. A business can only grow if you determine the growth by tracking the financial records, which can be only achieved by accurate bookkeeping.

7. Better Financial Management

Bookkeeping gives better answers to the questions like where the organization spends money, to whom it pays, outstanding payments, outstanding dues, etc. Hence, it helps the startups to handle their finances effectively.

8. Tax planning

Every organization needs to pay taxes in the form of income tax and indirect taxes like GST. They are required to file GST returns and Income tax returns as on due dates. For this, they require detailed and accurate information on the exact profit, sales, purchase, etc.  Here, startups get the information from the accounts maintained, and thus bookkeeping helps in calculating both the forms of taxes. Also, the books of accounts maintained can be used for tax planning and also help in a complete analysis of the financial transactions.

Conclusion

Bookkeeping is key for keeping a track of the financial performance of the organization. It let the management take informed decisions knowing how the organization is working and what corrective actions are needed So, startups should not ignore the importance of bookkeeping as it helps to compute the business performance in terms of money and not a burden.