September 24, 2019
5 min read
This blog provides new startups and small businesses a brief insight into the basics of startup accounting.
The present competitive times call for entrepreneurs to launch aggressive marketing strategies to launch their business and reach more customers in the fastest way possible. Businesses become a part of the race to success right from the moment of their incorporation. However, many times, business owners spend a huge amount of time in marketing, business development and business growth, and end up ignoring the key aspect of a startup i.e. startup accounting.
Startups must have an understanding of the basic concepts of business accounting and be able to classify and record its financial transaction for the preparation of financial statements. This blog provides a brief insight into the basics of startup accounting.
The foundation of startup accounting can be defined in the form of the following important accounting terms:
Bookkeeping is the process of recording and classifying financial transactions and activities of the business. It includes maintaining records of the financial activities of a startup and summarising the financial transactions into a form that can be used to provide its financial information.
Assets are the property, things or resources that bring in money for the startup. The assets of a startup may include land, machinery, cash-in-hand, Intellectual Property, debtors of the business, office equipment, payments from sales made, etc.
Liabilities of a startup are the things or resources that draw out money from the business. Liabilities of business include loans, credits, payables in the form of rent, mortgage, lease, etc.
Capital is the money that comes from the investments of the business as well as the net worth of the business. Equity is also an indicator of the profits and losses of a business as it depicts the capital and investment of a business from internal and external sources.
Expenses of a business also draw out money from the business and include loans, salaries to be paid, utility bills, etc.
To create a strong business foundation, top accounting consultants hold it important to identify the expenses of the business and segregate the important expenses of the business from the unimportant ones. This helps the business in tracking the channels from which the maximum money is drawn out from the business and monitoring the business growth. Having a complete overview of the startup’s expenses can also help in evaluating the financial position of the business.
It is important to keep a track of the likes and dislikes of a business’s customers, they financial interactions with the business, which products they like, and market the products to them which they demand. This can help the startup in turning its expenses into assets by identifying the modes to convert potential customers into business clients.
A startup needs to manage the salaries, bonus, incentives it pays to its employees. Payroll management helps the business in managing these activities along with the tax aspect of the salaries paid to employees. Efficient payroll management helps in better accounting management of the startup as it has all the details of its salary expenses already laid down.
One of the most important aspects of startup accounting is the taxes the business needs to pay and file returns for. Tax liability of a business may include GST, Professional Tax, TDS, Advance Tax, etc.
The business must keep its documentation recorded in its books and registers in a secure manner. The accounting documents of a startup may include bank statements, agreements, ledgers, payroll information, tax receipts, etc.
It is important for a young startup to manage its accounting and financial information efficiently. Hiring a full-time accountant or doing it on their own may not be feasible for a majority of startup founders. Thus, consulting an accounting consultant can provide the right insights and expertise into startup accounting management. SeekWiser can connect startups and small businesses with the best accounting consultants in India for all their business accounting-related needs. Call them at +91-8010880066
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