Accounting advice for startups: what you need to do
So you’ve made the leap, struck out on your own and started your own business. It’s an exciting time, but it’s also hard work – and there’s a lot of important information to take on board.
As much as you want to get on with the fun parts of running the business, you’ll also need to meet a set of legal responsibilities around recording and reporting your activities, and paying the right tax.
And besides those obligations, a good accounting system will be vital to your business’s success, allowing you to measure your progress towards your goals and make well-informed decisions as you go.
To help you out as you take your first steps on a new business journey, we’ve summed up the main things you’ll need to know about accounting for startups.
Know your requirements
An important job for any new business owner is to get to know the legal requirements you need to meet, and your various reporting deadlines throughout the year.
These will be different depending on the kind of business you run and its activities, but generally speaking you should know about:
- self-assessment and payments on account
- company annual accounts and tax returns (if your business is a company)
- the VAT-registration threshold and VAT reporting deadlines
- PAYE and payroll reporting requirements
- any sector-specific tax and reporting requirements (eg the Construction Industry Scheme if you work in construction).
Get your bookkeeping in place from the start
Businesses are legally obliged to keep certain records. If you’re a sole trader or in a partnership, this includes:
- sales and income
- business expenses
- VAT records if you’re registered for VAT
- PAYE records if you employ people
- your personal income.
If you claimed a grant under the self-employment income support scheme (SEISS), you should keep a record of this too.
If you’re a limited company, you’ll have additional records to keep about the company and its finances – this is often more complex and rigorous than sole trader records, so talk to us if you need more information.
In either case, implementing an effective bookkeeping system is essential to record and process your business’s transactions, and in our opinion, cloud accounting software is the best way to do this.
Accounting software like Xero, paired with add-on apps like ReceiptBank, will allow you to completely digitise your bookkeeping and accounting system, so you’re collecting and processing information as you go.
Choose an accounting method
There are two main methods you can use for accounting: the accrual method (sometimes known as ‘traditional accounting’), and the cash method.
In accrual accounting, your income and expenses are recorded by the date of the invoice or bill, so that your accounts reflect future revenue that has been billed but not paid, and debts that you’ve been charged but not paid.
Under the cash basis, you only record income or expenses when you receive cash or pay a bill. Many small business owners choose this because it’s simpler and easier to understand – you can opt for this method if your income is £150,000 or less.
Understand the three main financial statements
With a bookkeeping and accounting system set up, you’ll be able to produce your accounts. These will largely be built on three main 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 cashflow statement, summarising the cash that’s coming in and out of the business.
We think it’s always best to get the support of an expert (like us!) rather than handling these statements yourself.
Not only will this save you a lot of time, but it’ll also mean you’re getting an accurate end result and detailed insights on your financial position.
We’re here to answer any questions you have about accounting for your startup. Get in touch to find out more.