Properly running a business means getting your finances in order. In the world of startups, where rapid growth is a necessity, the quality of accounting quickly determines success or failure. There is no room for error, so accounting services for startups are a must-have.
In this article, we'll show you how different startups are from regular businesses, different startup accounting tasks, and how outsourcing startup accounting services can help your business grow faster.
Small Businesses vs. Startups
To a layman, a startup and a small business are interchangeable. However, differences in certain aspects of their structure and objectives, such as the following, separate the two.
When you think about a small business, what usually comes to mind are restaurants, cafes, or brick-and-mortar retail shops. Small businesses typically compete in a stable market with other businesses, projecting their growth to be slow and steady.
On the other hand, startups are built to grow rapidly. These are companies built for growth, so startup businesses usually differ from conventional ones. For example, a startup restaurant would have a system different from regular restaurants. Otherwise, it remains a small business.
Typically, startups grow faster by creating innovative ventures that can disrupt an existing market. McDonald's is a great example of a startup—it changed the way food was made and inadvertently created a new industry: fast food.
A startup and a small business can have identical structures. But there is a high possibility a startup will switch to a structure that best suits its goals, like growth. Fast growth requires a startup founder to be ready to scrap any ineffective parts of their organization. It is one of the key characteristics of a startup: instability. A high-risk, high rewards type of thing.
Meanwhile, small businesses limit themselves to conventional, tried-and-true organizational structures. For example, if you run a restaurant, there is a natural hierarchy in the kitchen. There is a chef de cuisine, a sous chef, then the garde manger, and so on—and success in the industry means sticking to the formula.
In a way, financing determines the major difference between a startup and a small business because their objectives stem from whoever is financing their operations. Since startups are risky, expensive ventures, they are usually funded by angel investors or venture capitalists for equity, from which they will expect quick returns—the reason for a startup's need for scalable growth.
A small business is usually self-funded, either from the owner's savings or a loan. Because funding comes from the owner's pocket, the risk is minimalized, and the business is built to grow slowly to generate a steady flow of income.
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Alt name: Start up accountants building a balance sheet.
What To Expect With Startup Accounting Services
Startups are all about growth; any startup that doesn't grow well risks being called a flop since investors expect nothing less than quick returns on their equity. To grow exponentially, your startup accounting needs to be on point. And what better way to do that than by outsourcing your financial management to professionals? Here’s what you can expect when you do so.
The first step to maintaining your financial records is bookkeeping. Bookkeeping ensures all transactions—income, expenses, loans, etc.—are well-accounted for. Proper bookkeeping benefits startups since the lack thereof could only hinder a business from growing.
As to the proper type of bookkeeping, businesses have two options: single-entry and double-entry bookkeeping.
Single-entry bookkeeping, also known as cash accounting, is a bookkeeping system that only focuses on income and expenses. In single-entry bookkeeping, you simply record money that goes in and out of your business without considering any prior or future expenses.
Double-entry bookkeeping is the more comprehensive of the two. Debit and credit are introduced in double-entry bookkeeping, giving you a more comprehensive view of your business's financial status.
In double-entry bookkeeping, each transaction is classified as either a debit or a credit. A debit is money that goes out of your account payable to another entity type, and credits are when money is added to your account.
Understanding which transactions are debits or credits is important in running a business as it allows you to see your company's financial health more clearly.
A great example would be taking a loan. In single-entry bookkeeping, a loan would be considered income since it adds to your company's assets. However, in double-entry bookkeeping, a loan is considered a debit since it increases your liabilities in the long run.
Creating and Sending Invoices
Sales are the lifeblood of every business and a startup's key to growing faster. More sales mean more growth, which is why creating and sending invoices are one of the chief accounting tasks for outsourced services.
Sending out invoices to inform clients of payments can do one of two things: either they get your business paid or allow you to label an “earned” sale even though it hasn't been paid yet. This directly affects your cash flow and allows you to move your finances faster. If you fail to send an invoice on time, you might as well consider the sale lost and a deficit in your company's transactions.
Accounts Payables and Receivables
In addition to sending out invoices, services organize your accounts payables and receivables. Accounts payables are your expenses, and monitoring them closely gives you an idea of how much your company has to cough up regularly.
On the other hand, accounts receivable tracks how much money goes into your business and, consequently, the budget you have to work within a given timeframe, which leads us to our next task.
Cash Flow Management
Cash is on the first line of a balance sheet for a reason. It’s the most liquid of all the assets and the nearest at hand for any emergency expenses or if the business decides to make any significant financial decisions in the near future. It also works to give a business an idea of how much room they have to move around financially.
For a startup, cash flow is a clear indication of its potential for scalable growth. And hiring accounting services for startups is a step forward in the right direction. Accounting services can ensure quality cash flow management by building a stable budget for your business and pinning growth as one of the metrics to measure your cash flow.
Finally, we have taxes. Taxes, while a very stressful task for all businesses, remains one of the most important. Taxes serve as every company's legal obligation to the government, and filing taxes ensures they stay in business.
Startups, in particular, have to do an excellent job on their taxes because scalable growth at a rapid pace is sure to prompt tax investigations. Filing taxes for your startup correctly and on time can prevent any tax violations that could lead to your business's suspension or even closure.
If the technicality of taxes troubles you, tax services for startups can help. It's always better to have a tax expert on the team to guarantee accurate tax returns.
How Startup Accountants Make Your Life Easier
Accounting tasks are done on a daily, weekly, and monthly basis. The financial data collected during this timeframe are usually evaluated on a monthly or quarterly basis. But not everyone can read financial reports accurately, especially if your goal is to grow your startup.
Hiring startup accountants from an outsourced accounting firm is a step in the right direction. Here are some ways startup accountants can make your life as a business owner easier.
Saves Time (and Money)
The day-to-day management of a business is tiring enough. Accounting and bookkeeping services take away the extra stress from your job and allow you to spend more energy on running your business. Imagine handling your own accounting, too.
Outsourced accounting firms save you money, since hiring accounting services is much cheaper than adding an entire team of accountants to your payroll.
Accurate Financial Analysis
Once you have your data ready, it's important you evaluate them accurately. But even if you have the most accurate books, the data in them won't matter unless you have an experienced team analyzing them for you.
Accounting services for startups know how to analyze your financial reports specifically for your business's long-term goals. To do so, they will produce and analyze the following financial statements:
- Balance sheets
- Income statements
- Cash flow statements
- Statements of owner's equity
Helps You Make Expert Financial Decisions
Any financial decision can make or break your startup—that's how volatile startups are. If you want it to grow continuously and produce adequate results, you'll have to make decisions that are nothing short of the best.
Accounting services for startups have an in house team of seasoned accountants who specialize in launching your startup further. They can help make decisions concerning investments, stock options, and valuation. This is especially helpful for taxes since the companies always struggle with the technical side of filing taxes and how to save money on tax returns.
Looking for Accounting Firms for Startups? Try Unloop.
Having a stable accounting system for your startup is vital to its success, and hiring accounting firms for startups is the way to get it done. If you're in the market for startup accounting services, try Unloop, the premier North American accounting service in the market.At Unloop, we ensure your business stays in great financial shape. Book a call with us to learn more!