Running a successful startup can be a challenging but rewarding experience. Some of the primary concerns small and new businesses have include obtaining customers and producing revenue. Startups usually begin with higher costs and more limited funding, and that is why financial accounting is so important for startups to make money. If your financial understanding is limited, then investors and stakeholders may opt for another opportunity. In this blog, we’ll tell you some of the basic things you need to know about accounting for startups.
Do I Need to Be a Finance Major to Handle Accounting?
Advances in technology have made digital accounting easier and less time consuming for running your business, so it is possible to manage your own accounting. Affordable software applications such as QuickBooks and Peachtree are easy-to-use programs that make tracking costs and sales simplified for startups. The same goes for Intuit, a software that handles tax returns. Outsourced bookkeeping for startups service are also available for companies who do not have the time to manage their own accounting.
Terms and Concepts to Know
Nonetheless, the world of accounting has many important financial terms and metrics that all businesses must understand. Here are some common concepts and terms to know.
These records indicate how and how much your business earns in profit and revenue. They give insight into financial performance which includes balance sheets, cash flow, and income statements. Ideally, they should be handled either monthly or quarterly.
Operating Cash Flow (OCF)
This is the total cash amount generated over a financial period. Two methods exist for OCF to appear on statements. The indirect method starts with net income from the income statement then adds back non-cash items towards the cash basis figure. The direct method tracks financial transactions in a period on a cash basis, using actual cash inflows/outflows on the cash flow statement.
The income statement displays the financial performance of business through expenses, revenue, and net income. Net income is calculated by subtracting the sums of expenses and losses from the sums of revenue and profit gains. This is a useful insight for a business’s efficiency and performance in sectors.
Equity is the owner’s interest within a company. This can be calculated by finding the difference between your assets and liabilities located on the balance sheet. If the difference is positive, then the business made revenue.
General Ledger (G/L)
The general ledger is a complete record of your financial transactions and data. This includes assets, liabilities, revenues, along with owner’s equity.
This is a comparison of your record sales and costs against the record that your bank has. You can use this to identify any errors that can affect tax and finance reporting. This should be conducted monthly for your active bank accounts.
Do I Need an Accountant?
For startups just beginning, bringing on a full-time accountant it isn’t as immediate a concern as getting customers and producing revenue. Advances in accounting software also made the task of managing finances easier for the everyday business owner. For tasks that take a little more expertise, you can find an external accounting partner to support your needs.
Need Help With Your Accounting?
If you are in the DC Metro area and are ready to streamline your company’s accounting department, get in touch with the team at District Advisory. Our experienced professionals are available to provide your small to medium business with timely, consistent, and accurate advisory and accounting services. Contact the District Advisory team today