New founders always put accounting and bookkeeping on the backseat. Thinking it’s not as necessary as focusing on their customers and product quality, but hey, how are you gonna track profit, manage salaries, and acquire investments without it?
According to 2017 and 2018 statistics 82% of businesses fail due to cash flow and finance management problems. Don’t panic! Your startup won’t fail. This blog dive into the basics of accounting and booking services for startups, ensuring you get all information required to run a successful business.
Why Startups Often Struggle with Financial Management
Most of the founders are often experts in their product/service, not finance. Their whole focus remains on MVP and customer attraction. With tons of work already on your plate, there is no room for finance management. Furthermore, financial jargon and endless spreadsheets make it more chaotic.
Quick note for the future: As a startup scales, financial complexities multiply rapidly. This isn’t just about today’s headaches. It’s about preparing for tomorrow’s growth.
Ways to Handle Bookkeeping and Accounting For Startups
Having limited resources and only 24 hours a day makes things even more challenging. Though we can’t increase the time, we surely can find other solutions to handle accounting and bookkeeping services. Here are a few ways you can ease your business finances:
Do-It-Yourself (DIY) Accounting & Bookkeeping:
For small teams or if you are a solopreneur, DIY bookkeeping can work to some extent. You can manage it through spreadsheets. However if you have some budget going with specialized bookkeeping services will be the best bet.
Pros:
- Cost-Effective (initially): No direct service fees.
- Complete Control: You have direct oversight of every transaction.
- Direct Learning: Forces you to understand the basics of their finances.
Cons:
- Time-Consuming: Takes away valuable time from core business activities (product, sales, customers).
- High Risk of Error: Lack of expertise can lead to costly mistakes and missed deductions. You might face compliance issues, or poor financial reporting too.
- Scalability Issues: Managing spreadsheets has no scope for scalability.
- Lack of Strategic Insight: Often focused only on data entry, missing opportunities for analysis and strategic planning.
Burnout: Accounting adds significant stress to an already demanding founder role.
Using Accounting Software:
Utilizing specialized accounting software can be the best bet for founders on a low budget. These software automate some processes but still need manual efforts.
Pros:
- Improved Organization: Far better than spreadsheets for tracking income/expenses.
- Automation: Automates basic tasks like invoicing, expense tracking, and bank reconciliation.
- Report Generation: Can generate basic financial reports.
- More Affordable than full-service: Lower monthly software fee compared to an accounting service inc (although full-service is suggested for businesses).
Cons:
- Learning Curve: It takes time to master the software and accounting concepts.
- Still Time-Consuming: It takes considerable time to enter data, classify, and reconcile, particularly without financial knowledge.
- Error and Omissions: There can be errors if the founder lacks accounting knowledge.
- Limited Strategic Guidance: Software gives information but not strategic guidance or tax guidance.
Hiring an In-House Bookkeeper/Accountant:
If you have a good budget for accounting, employing a dedicated person within your company to handle financial tasks will be the best bet.
Pros:
- Dedicated Resource: Full-time focus on your business’s finances.
- Immediate Availability: Easy to communicate and get real-time answers.
- Deep Business Understanding: You can gain a very specific understanding of your company’s operations.
Cons:
- High Cost: Significant salary, benefits, and overhead, often prohibitive for early-stage startups.
- Limited Scope of Expertise: One person may not have expertise in all areas. For instance, a business requires tax knowledge, audit handling, and growth strategy, which can’t be expected from one person.
- Recruitment Challenges: Finding a truly qualified and trustworthy professional can be difficult.
- Scaling Issues: We may need to hire more people as complexity grows.
Outsourcing to Professional Accounting & Bookkeeping Services
The most recommended solution is outsourcing to professional accounting and bookkeeping services.
Pros:
- Expertise and Specialization: Access to a team of experienced professionals (CPAs, bookkeepers) with various expertise (tax, payroll, compliance, industry knowledge).
- Cost-Effective: Generally less expensive than an in-house employee, as you are paying for work done, not the whole salary and benefits package.
- Time Savings: Allows founders to concentrate on core business development.
- Reduced Risk: Reduced mistakes, compliance assured, and proactive detection of financial problems.
- Strategic Insights: Most companies provide consulting services, offering insightful financial analysis and strategic advice.
- Scalability: Services are easily scalable up or down according to your needs.
- Access to Technology: Experts usually employ sophisticated software and tools.
Cons:
- Initial Setup Time: Requires time to onboard the new service provider.
For businesses it is always recommended to go with professional outsourcing services. If you get the right services, the setup will also get smoother.
The Core Benefits of Professional Accounting and Bookkeeping Services for Startups
Understanding the benefits of professional accounting services can help you make informed decisions about your business expansion. With the help of professional accounting and bookkeeping services, you can scale up and scale down your business easily.
Financial Clarity and Insight:
Professional services often provide clear profit & loss reports. You can also expect balance sheets and cash flow statements, making business decisions more data-based. Further, you get timely and up-to-date financial information.
Compliance and Risk Handling:
With the proper accounting and booking services, you can effortlessly avoid penalties, ensuring timely submission. Accounting professionals have good experience with handling payroll taxes and sales taxes. Furthermore, they can help you meet legal obligations and industry-specific requirements.
Optimized Cash Flow Management
One of the major reasons startups need accounting and affordable bookkeeping service is optimized cash flow. Business can’t survive the market without a well managed cash flow.
Thus, professional accounting services can help you make realistic budgets and predict future cash needs based on industry trends and past data. They can further monitor expenditure, ensure timely collection of income and payments of bills.
Strategic Growth and Funding Readiness
Well-maintained books can instill trust in potential investors. In addition to that, the bookkeeper can provide assistance in creating financial models for pitches. They can also help you set up a system that grows with the company, preventing future financial headaches.
Time and Cost Savings:
Working with professional bookkeeping and accounting services can free up your time so you can focus on your product. It also reduces the chances of manual errors and helps maintain a stable image of your business.
When to Engage Accounting and Bookkeeping Services for Your Startup
One of the most crucial questions startups have is when bookkeeping becomes absolutely necessary. Hear it loud and clear! Businesses require accounting services from day one. If you can’t get it from day one, it is absolutely necessary to have these services in the first month. The longer you delay, the more problems it creates for your business.
Just a heads up! Messy books can’t help you secure funding.
Final Thoughts:
Accounting and bookkeeping services for businesses are absolutely necessary. Additionally, it’s always recommended to outsource your bookkeeping to a professional. That way, you can save both time and money. Thus, if you are struggling to find the right bookkeeping services, we got you covered! We provide accounting, bookkeeping and tax services in New York to all sizes of businesses. Ensuring your startup grows 4X each day!
Frequently Asked Questions:
The cost can be between a few hundred to several thousand dollars depending on your business size, product, scalability, tax compliance and other factors. Quoting one price that fits all business isn’t possible.
Yes, businesses who operate on traditional selling structures always require accounting services. Further you will need bookkeeping services to keep a clear and crisp record of all payments and income.
It is possible to do your own accounting to some extent. However, as the team grows, so do your accounting responsibilities. Thus, for growing startups, it is recommended to outsource accounting to professional services.
For small businesses, it typically ranges from $250 to $2,000 per month. Although the cost can be way too high or low depending on your business structure, bookkeeping needs and number of employees.
