March 28, 2024

An interesting study by Shikhar Ghosh of the Harvard Business School finds that 75 percent of startups fail. Among the many reasons for failure is lack of good mentorship and taking advice from wrong people and, importantly, lack of business knowledge pertaining to finance. Startup Genome finding is even worse: 11 out of 12 startups failed. Again, a crucial factor is that 40% of startups have cash to last for less than 3 months. In their enthusiasm to get ahead, most startup operators neglect bookkeeping and, before you know it, cash crunch forces you to shut down operations. Avoid this by following these simple bookkeeping tips.

You do not have to be an accountant

It does help if you have knowledge of accounts. However, you do not have to be an accountant to maintain records of financial transactions. You can always engage online bookkeeping services for small businesses for proper bookkeeping.

Be meticulous and regular

It is understandable for startup owners to focus first on matters of urgency like obtaining orders, order execution, procurement and interaction with business promotion experts. However, putting off bookkeeping to the weekends can have disastrous consequences when you find that expenses are more than income. Time can be a constraint but you must spare at least a half hour at the end of each day to jot down financial transactions and keep records. A good alternative is to let outsourced bookkeeping services do it for you but even then you must have paper or digital records to pass on to the bookkeeper each day.

Acquire basic knowledge

You could simply jot down all the expenses, sales invoices and income in one list. However, it is better to know various heads of bookkeeping and be specific in jotting down entries under specific heads such as:

  1. Revenues accrued through sales
  2. Expenses covering cash outgo for travel, salaries, utilities under separate heads
  3. Assets such as inventory and payment receivable
  4. Liabilities covering due payments to suppliers, for taxes and other obligations

Why maintain separate heads? At the end of the week and at the end of the month you jot down the total and you have a rough idea of the state of your financial health. It is easy to maintain this kind of bookkeeping using Excel sheet. You may find it better to use regular bookkeeping software. This could be a better way since your bookkeeping service for small business can access entries and work on them to prepare statements and correct as well as correlate entries. This becomes necessary since banks are involved in financial transactions. It becomes complicated.

Single entry and double entry

Engineer entrepreneurs and IT or science based startup operators will find it a challenge to wrap their head around the double entry bookkeeping method but that is how it is done in the real world and it is better in order to balance books. You know precisely whether you are running at a loss or earning profits. In the double entry method of bookkeeping each transaction entails a debit entry and a credit entry. If you do not wish to go deeper into this you can always leave it to outsourced bookkeeping services to do it in the right way. Meanwhile you simply enter each transaction in the excel worksheet or in the accounting software.

Tallying and balancing

Bookkeeping appears straightforward but you will find out discrepancies when you sit down to tally and balance accounts. There may be an entry in the bank section which does not tally with your expense or income list. You may have omitted to add an entry. Some entries may be recorded twice. Tallying involves posting journal entries to proper account sections in the general ledger. Smart businessmen tally books at the end of each week or each month. You know accurate status of your accounts through balancing and you can take remedial action. If balancing books is not something you wish to do then you must let bookkeeping service for small business do it for you by balancing books and drawing up financial statements.

Know about balance sheet, profit & loss account and cash flow

It takes time for some without a background in accounting to understand the nuances of balance sheet and profit and loss account. It is best to let a professional bookkeeper oversee accounts and draw up these statements in order to keep you apprised of your financial health. The bookkeeping service maintains books and has top level financial analysts to give you guidance. For instance, you may calculate profit as difference between cost of purchase and sales proceeds but there are other factors to consider such as depreciation, liabilities and indirect costs that alter the picture. This is where expert advice keeps you in the know. You can take better decisions.

There is no escaping bookkeeping. As a business owner you must be grounded in basic accounts and must maintain day to day records of financial transactions while leaving the detailed part to outsourced bookkeeping services. This way you avoid falling into the 90 percent failure bracket.

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