Importance of Accounting for Start-up Companies

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Importance of Accounting for Start-up Companies

What is Accounting?

Accounting is a systematic method through which the financial information of a business is:

  • Recorded,
  • Organized,
  • And analysed to produce meaningful results.

Accounting helps to form financial statements that provides a summary of all the financial transactions during a period. It will illustrate the cash flow and operations’ status of your start-up, showing an accurate picture of the financial health of your start-up company to assist in both internal and external regulation purposes.         

Accounting Processes

Through accounting processes business transactions are:

Recorded Reported Summarized Analysed Projected

Types of Accounting

At present, there are numerous accounting systems available for start-up companies, some of which are as under:

1. Managerial Accounting

The process of recording financial information intended specifically for internal stakeholders.

USE: The information is used by the internal management to make informed decisions to achieve the main goals of a business.

2. Financial Accounting

Financial transactions during an accounting period are recorded and summarized into financial statements. These statements act as a measure of economic performance of a business for various stakeholders.

USE: At start-ups, these statements may be requested and hence shared with the company’s key stakeholders such as board of directors and investors.

 3. Cost Accounting

Process of recording financial information relating to the cost of producing products or services.

USE: Start-ups need to use this information to make predictions, form budgets and for analysing the performance of the business.

4. Tax Accounting

This type of accounting tracks all outgoing and incoming funds associated with the operational concerns of a start-up.

USE: Helps to accurately assess the effect of tax burden and compliance of your start-up company.

What are Included in Accounting Services?

Some of the accounting services provided by firms are as under:

  • Transaction recording,
  • Accounts maintenance,
  • Financial statement preparation,
  • Bank accounts reconciliation,
  • Financial planning and analysis,
  • Law and regulation compliance,
  • Growth planning,
  • Fund raising insights,
  • Taxation management,
  • Book-keeping activities,
  • Receivable/payable management,
  • Payroll management

Why do Start-ups Need An Accounting Function?

Even though your business might be at an initial stage, you need solid accounting practices to have a clear visibility of the financial health of your company.

Start-ups have an unpredictable nature due to which accurate accounting information access can help to:

  • Make nimble analysis of the initial setup,
  • Identify growth opportunities,
  • Identify opportunities for improvement,
  • Take in better strategic decision making insights,
  • Manage threats at an early stage,
  • Have clear and well managed books,
  • Access to structured accounting records,
  • Determine profitability,
  • Help in tax consultation and other legal regulations,
  • Have a clear picture of the business’ success level,
  • Find ways to mitigate weaknesses.

What Will It Cost?

For a start-up, accounting function is by far the most vital function for the business. Not only its present running but the future going concern depends on this. A good accounting function with expert work force is available for nominal cost. The payment methods are usually flexible to your needs. Hence accounts management is easy to get at extremely LOW COSTS!

Advantages of Accounting Function for your Start-up

Cost and Time Saving

Having well organized accounting function can help relieve time and money from trivial activities. Start-ups at the beginning of a business need as much time and money saved as they could possibly get. The saved time and money can be utilized for the core business activities of the organization.

Determine Profitability

For a start-up, determining future profitability is very vital. This can help monitor progress of a company and make timely amendments. Accountants can help entrepreneurs by providing useful accounting information that can lead to accurate determination of profitability and likewise effective decision making.

Financial Estimates Forecast

Start-ups need to provide financial estimate information to investors, banks or lenders in order to obtain funds. In order to lure more investors, start-ups need accounting function to make good business plans that include:

  • Economic forecasts,
  • Estimated monthly expenditure,
  • Projected rate of growth,
  • Reliable projections of the company’s financial expectations.

Budget Expenses

Accounting will help to set up a budget for expenditures of your start-up. This budget can help your company to reduce and manage expenditures at an initial stage. This can help identify and eliminate non-essential items and save capital for future purposes.

 Payroll Accounting

Accounting will help start-ups to record and maintain employee’s compensation such as:

  • Salaries,
  • Bonuses,
  • Commissions,
  • Health insurances,
  • Paid holidays,
  • Pensions etc.

This will help create a proper database to form a sophisticated structure for the company.

Focus on Business

Using outsourced accounting or CFO services will let you focus more on your products and services rather than worrying about accounting records maintenance and financial management.

Tax Specialization

Ahead of the areas of finance and fund raising, taxation is an aspect where start-ups may face a lot of difficulties. This is where trained professionals will be required to handle matters effectively in accordance with the taxation laws in a country. Transparent and well-managed taxation is the utmost required aspect for every start-up’s accounting.

Secretarial Duties

Professional accountants can perform secretarial duties for a company, keeping in compliance with the laws and regulations of a company. These rules are required to be strictly followed by start-ups from the initial phase to avoid penalties, fines or dissolution of the company.

Valuable Business Partner

Outsourcing accounting function to professionals give huge importance to start-ups as they get wide range of experience and expertise from these firms. This will help start-ups to have insights of valuable market information about:

  • Raising funds,
  • Financial planning and
  • Financial reporting.

In a Nutshell

Accounting has prime importance for any start-up company. Start-ups need a robust accounting function due to the uncertainties involved in the business at the initial stage. Hence you need experts to handle all the financial, accounting, bookkeeping and taxation needs of your start-up company with accuracy and speed. This will not only improve the financial health of your start-up company but will also provide basis for better decision making in future.

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