Accounting for Small Businesses 

Some may not realize that entrepreneur-led startups and small businesses require the same need for accounting expertise as larger companies. Regardless of the type of business, it is essential to understand the importance of best accounting practices for your business from the beginning. Without this, it will become easy to get unorganized, ineffective, and have your business feeling out of control. 

To scale your business for growth, you must be able to identify potential risks and opportunities. Achieving this will be nearly impossible without a solid accounting foundation. 

Accounting Challenges New Businesses Face

Business Direction

Business decisions and bookkeeping go hand-in-hand. Accounting can be viewed as, quite simply, the essential process of recording your business’ financial affairs. This process becomes more complicated when this data must then be analyzed effectively to assist in critical decisions for your business and its growth. 

Research indicates that the number-two reason startups fail is mismanaged cash flow, which comes second only to a product the market does not need. Proper management of your finances can help you gain insight into the indicators that determine whether your business is operating successfully. Thus, further leading to better financial and management decisions. 

This knowledge can help you navigate the best way to grow your business, arming you with the tools to assess everything from customer acquisition costs to the cost of goods sold. Well built bookkeeping will help keep you in line with planning your business’ next steps. 

Managing Cash Flow 

Having a clear idea of how cash flows in your business will assist in understanding where money is coming from, where it is going, and where it is due–ensuring you never miss a beat. Understanding your cash flow needs and key performance indicators will help you proactively manage your business as it ebbs and flows. 

Capturing Investors and Raising Capital 

When launching a startup, you put much effort into your ideas and plans to build your business. To secure investors, you must be able to provide an accurate snapshot of your business’ financial health and value. 

Having high-quality financial statements will provide peace of mind for potential investors, a sense of reliability in fundraising, and is mandatory to provide for tax reporting. When raising capital, these records will instill confidence in your investor and increase your likelihood of receiving a check.

Wearing Too Many Hats 

Researching your market, planning, and finding the right team to help build your brand takes time and energy. When starting out, you are trying to bootstrap, stretch limited budgets, and cut costs.    

The common dilemma founders find themselves managing is “wearing too many hats.” There are core business activities that require time, focus, and consistency. Bookkeeping inevitably can become pushed aside to dedicate the time to operations, brand marketing, and gaining traction. 

When you choose to hire an outsourced accountant, you can re-focus on the things your business truly needs from you–marketing, sales, developing relationships, and creating partnerships.  

Preparing Annual Taxes

Consistent bookkeeping can make preparing your annual taxes a much simpler process. Having well-maintained financial records with a balance sheet, cash flow statement, and profit and loss statement allows more time for making sound tax decisions rather than fixing problems.  

Benefits of Solid Bookkeeping

Here is a snapshot of some of the critical benefits of accounting for your business:

  • Keep track of debts and receivables. 
  • Understand past activity and where you currently stand to plan for the future.
  • See where your business stands and how it is performing financially.
  • Analyze competitors and evaluate investment opportunities.
  • Communicate information externally to people/organizations that use the financial report of a company (e.g., banks, the IRS, suppliers, creditors, future investors, and leasing companies).
  • Discuss the business’ strengths and weaknesses with your employees.

Expert Insight

While it may not seem like a top priority, as your business grows, effective accounting and cash management will be critical for your business’ success. If reading this, you find yourself wondering, “when do I actually need to hire an accountant,?” here are a few things to consider: 

  • Have you raised an initial round of funding? (e.g., Series A)
  • Have your expenses increased?
  • Do you have an increase in employees?
  • Do you want to begin fundraising?

If you answer yes to any of these, then it may be time to consider your needs for more significant financial reporting seriously. 

However, picking the right accountant is crucial as you want to ensure you have the right fit. There are a variety of challenges that come with managing bookkeeping for small businesses, especially startups. You want to make sure you have someone who can navigate you and your business through development to fuel future business growth. 

Don’t let financial mismanagement be the reason your business does not see success.