Key Accounting Steps for Startups
The financial health of your startup is essential. But implementing a well thought out accounting plan is often overlooked by new business owners whose strategies are aimed elsewhere.
Let Someone Handle the Finances
In a business large or small, somebody’s got to manage the books. And that person needs to know every detail about the firm finance, so if an issue does arise, it’s detected pronto. But often the owner of a startup is too busy with other obligations to manage the company finances. Outsourcing this function to an accounting firm can free up the owner and save money in the long run.
Use Good Accounting Software
To make informed money decisions, you need to access your financial data quickly and remotely. Do this by using road tested, cloud based, respected software. (At ALVA we use products such as QuickBooks and Xero, which offer both desktop and cloud based versions.) There are various accounting software programs available, but consider the needs of your business before making a software decision .
Keep Cash Reserves
Don’t wait to hit bottom. Draft and implement a plan to maintain a cash reserve—3 to 6 months of operating expenses is considered a prudent practice. Keep an eye on your longer range future expenses too. It may be time to tuck more money away or to plan your next debt or capital raise. Financial forecasting can be critical in timing these decisions.
Draft a Doable Budget
Plan before you spend. New business owners should know where the money needs to go and then allocate dollars.
- Consider the one-time expenses—for equipment, legal fees, websites, supplies, furnishings,
- Carefully estimate revenue and expenses—the static bills like payroll, rent and equipment leasing along with the fluctuating fees like product and advertising.
- Conduct market research to arrive at realistic costs and revenue goals
- Evaluate and update your budget to maximize your profits.
Of course, some expenses are unforeseen and not built in your budget, so your cash reserve or a rainy day fund will come in handy.
Consider a Loan Over Fundraising
Sometimes a loan makes sense. Rather than putting all your effort into a cash raise that may or may not happen. You need to pay your people and take advantage of growth opportunities as they come along. Consider eligibility for a bank loan, going the traditional route, as well as online crowdfunding. Access successful mentors and consulting professionals to help you with this process.
Pay On Time
Getting into debt can be a downward spiral. Set policy to settle your invoices timely, within 30 days, to avoid future complications such as credit worthiness. Use your accounting software program to track invoices. And resist paying the bills by credit card.
Hire wisely. Run your new startup with as few people as possible. This shrinks your operating costs and boosts net revenue. Employees in a startup should wear a lot of hats—perform multiple roles, have broad job descriptions. But don’t drown your people in work beyond a realistic expectation.
In the start up world, it’s also important to understand varied forms of compensation, such as commission structures and employee stock options, to attract the right talent.
Understand Business Structures
There are many implications surrounding the form of your business. Different structures have various business and tax implications. Understand where your business stands with good old Uncle Sam and how different structures may effect an exit. Consult with someone in the know regarding tax implications related to your operating structure (sole proprietorship, LLC, LP, LLP, PC, C-Corp, S-Corp). And learn the obligations tied to employee payroll. Then plan your budget and projections accordingly.
Depending on your strategy for funding and growth, different business structures will serve your needs. Whatever form you elect, it is equally important to have a strong operating agreement in place to protect you and the business.
Alva Advisory Services
Alva Advisory Services, LLC (“Alva”) of The SDDCO Group provides startup consulting services for new technology and fintech firms. Alva also delivers ongoing accounting and tax compliance solutions to new and established tech companies.
- Visit www.teamalva.com/services/
- Reach out to Courtney Murtha (Business Development) , Rick Daniels (Accounting) and the rest of the Alva team at 212-751-4422
Formed in 1952, the SDDco Group of accountants and consultants (www.sddco.com) delivers outsourced professional support to the financial services and technology sectors. Our menu of professional services includes accounting, regulatory and tax compliance, AML testing, brokerage hosting and supervision, as well as assuming designated FinOp, CCO, and CFO roles. To connect with SDDCO:
- Call Us: 212-751-4422
- Email Us: firstname.lastname@example.org
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