Accounting Advice for Startups: Here’s What You Need To Know

Accounting Advice for Startups: Here’s What You Need To Know

If you’ve recently made the leap and started a business on your own, you’ll most likely be looking for advice regarding your finances. That’s why we’ve written this accounting advice for startups guidance article.

First things first, you’ll need to meet a set of legal responsibilities around recording and reporting your activities, and paying the right tax.

Of course, a top-notch accounting system isn’t just about meeting legal obligations. It can also be vital to your business’ success, allowing you to measure progress and make well-informed decisions as you go.

You might be thinking that there’s a lot to think about. Try not to worry, though, because our accounting advice for startups covers all the information you’ll need to know in order to get your business off the ground.

Start up Business Accounting Advice

When starting a business, you should focus on the following four aspects of accounting for startups:

  1. Know your requirements
  2. Get your bookkeeping in place early
  3. Choose an accounting method
  4. Understand the three main financial statements

1. Know Your Requirements

Our first piece of start up business accounting advice is knowing your requirements. This is because ignoring legal obligations is the fastest way to ensure your business goes up in smoke, so you’ll need to keep track of all the key dates and tasks that impact your operation.

These will be different depending on the kind of business you run, but we’ve listed a few below that are commonly applicable:

2. Get Your Bookkeeping in Place Early

Given HMRC’s lengthy list of requirements, you’re going to have lots of records to look after.

Far and away the best method of organising them is by implementing an effective bookkeeping system. Though libraries have sworn by the Dewey Decimal system for years, we feel that cloud accounting software is the most suitable option for new business owners.

Accounting software such as Xero, paired with add-on apps like ReceiptBank, will allow you to completely digitise your bookkeeping and accounting systems. Once set up, they’re sure to save you a significant amount of time when record keeping.

3. Choose an Accounting Method

You’re not really spoilt for choice here, as there’s only two options to pick from: the accrual method and the cash method.

The Accrual Method

With accrual accounting, your income and expenses are recorded by the date of the invoice or bill. Your accounts reflect future revenue that has been billed but not paid, and debts that you’ve been charged but have not paid.

The Cash Method

Under the cash basis, you only record income or expenses when you receive cash or pay a bill. Because it’s pretty simple to understand, it tends to be the option of choice for new business owners. Unfortunately, if and when you reach the big leagues and start hitting £150,000 income, you’ll need to switch to accrual accounting.

4. Understand the Three Main Financial Statements

Our fourth piece of accounting advice for startups is understanding the three main financial statements:

  • A balance sheet showing your assets, liabilities and equity.
  • An income statement (also known as profit & loss), which shows your income minus expenditure.
  • A cash flow statement summarising the money that’s coming in and out of your business.

As a limited company, you’ll need to file a balance sheet and income statement to HMRC at your financial year-end. Sole traders aren’t obligated to file any of the financial statements in the list above, though it’s best practice to produce them anyway (they’ll help with financial analysis and creating an audit trail).

Though you can create these statements yourself, it can get a little overwhelming if you’re a very new business owner. As such, we’d recommend getting the support of an expert rather than dealing with them yourself.

Not only will this save you a lot of time, but you’ll also be able to benefit from the improved financial insights that a trained accountant can offer.

Final Thoughts

If you’ve got any questions after reading through our startup business accounting advice, we want to hear from you. Schedule in a consultation call with one of our experienced team members today.