Kristen Slavin is a CPA with 16 years of experience, specializing in accounting, bookkeeping, and tax services for small businesses. A member of the CPA Association of BC, she also holds a Master’s Degree in Business Administration from Simon Fraser University. In her spare time, Kristen enjoys camping, hiking, and road tripping with her husband and two children. The firm offers bookkeeping and accounting services for business and personal needs, as well as ERP consulting and audit assistance. To ensure that journal entries have been recorded and posted correctly, small businesses use the trial balance accounting method to double-check account balances for a given time period.

Accrual basis accounting

This event would be reflected as equity purchased or repurchased on the cash flow statement. The balance sheet shows your assets and liabilities, which lay the foundation for your company’s financial status. Did you know that over 30% of new businesses fail due to running out of cash?

Maintain Adequate Records

• Hiring a startup accountant isn’t required, however, accounting services are strongly recommended no matter your business size or stage.
• As your business grows and incurs more one-time expenses, your balance sheet will grow accordingly.
• Many start-ups operate remotely, have home offices, or share working space.
• It might be easy to grab your personal card for a business lunch or office supplies, but stick to using the business accounts only.
• No matter which approach you choose, investing in reliable accounting software is essential.
• Continue to read more about the essential accounting tips for startups.

A complex business in a highly regulated industry will likely require a larger accounting budget than a simpler business in a less regulated one. Think about these factors to create a budget that accurately reflects your startup’s unique situation. Tax compliance is a subset of due diligence, and your accountant can help Accounting Services for Startups you explain to the VC fund or the acquirer that you have followed all federal and local rules and regulations. This is becoming an increasingly important part of later-stage due diligence and M&A diligence, so make sure you have an experienced startup accounting firm if you are raising big VC $$. While many startup founders choose to hire an accountant, it is possible to do accounting yourself or by using accounting services. These are the Generally Accepted Accounting Principles that are used to standardize accounting practice across the US.

Closing Accounts

The remainder would stay on your balance sheet as deferred revenue. That makes your income more accurate and predictable, and investors prefer to see that regular revenue. Bookkeeping entails keeping track of all financial documents and transactions relevant to your startup. This may include receipts, tax forms and returns, bank and credit card statements, and proof of payments.

• When you’re starting your own business, it’s important to get your accounting and bookkeeping set up from the very beginning.
• To ensure this, an accounting firm should strive to hire competent professionals.
• Build your specialty to cater to their needs by hiring the right personnel or training them to acquire the needed skills.
• They also grow alongside your business, so you won’t have to swap out software as you expand.
• If your business is small, you might choose to handle the accounting yourself rather than hiring an accountant, and only seek professional when it’s time to prepare taxes.

So, while it might be a bit more complex to manage, accrual accounting sets you up for sustainable growth and greater financial clarity. Choosing the right accounting method also plays a role in tax optimization. While cash basis accounting might seem simpler in the early stages, accrual accounting offers a more accurate view of your finances and can be beneficial for tax planning. It also provides the GAAP-compliant reporting often required by investors as your business grows. Consult a CPA experienced with startups to determine the best approach.

This process involves comparing your internal records with your bank statements to identify any errors or missing transactions. Staying on top of your accounts receivable means you’re less likely to experience cash flow crunches and can keep your business running smoothly. Securing funding, making strategic decisions, and achieving long-term success—it all starts with a solid grasp of startup accounting. This isn’t just about crunching numbers; it’s about understanding the financial story of your business. It’s about knowing where your money is going, how to manage cash flow effectively, and how to use financial data to drive growth.

• Track how much you are earning and what percentage of that is profit.
• A well-established business plan is the foundation of a solid and successful business.
• If you’re unsure where to start, consider exploring FinOptimal’s resources on financial management and automation.

You can launch your startup accounting system with the cash method and switch to accrual as you grow, but not vice versa. Ideally, you should examine your financial statements monthly so you can identify trends, make timely business decisions, and spot potential issues that need prompt attention. Not maintaining thorough financial records can make it difficult to track your business performance, let alone conduct accurate planning and budgeting.