What is Accounting and Why it Matters for Startups?
Accounting refers to the process of keeping track of a company’s financial transactions.. It includes systematically recording, reporting, and analyzing a business or organization’s financial records and performance. The accounting process includes further reporting the analysis of these financial records to tax agencies and firms. Accounting can allow business owners to examine their company’s performance regarding revenue collection, losses, and operational costs, etc. Its importance cannot be ignored in laying the foundations of financial stability in a startup business.
Regardless of a firm’s size, accounting is a vital function that can help business owners make informed decisions regarding cost planning and determining the economic performance of their business.
Further, accounting is often regarded as the “language of business”: it tells a company’s tale to its clients and employees. Usually the contents of this story may vary depending on whether the hearers are insiders, outsiders, or the tax authorities. GAAP (Generally Accepted Accounting Principles) is the most common accounting for external authorities. The US tax authorities, on the other hand, require a hearing using the Internal Revenue Code (IRC).
Before discussing why accounting matters for startups, it is important that readers understand the type of roles the accounting department embodies.
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Bookkeeper Vs. A Certified Public Accountant
A bookkeeper can handle basic accounting needs, like inventory management. They record a company’s financial transactions. A Certified Public Accountant (CPA), on the other hand, handles advanced accounting tasks.
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Types of Business Accounting
There are two types of business accounting. Managerial accounting can help the management team make business decisions such as downsizing. Cost accounting can help business owners decide the cost of products and services that their company offers.
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Accounting Principles
GAAP (Generally Accepted Accounting Principles) are a set of standards that professional accountants follow when preparing and reviewing financial statements. If you are hiring an accountant or an outsourcing accounting firm, make sure they comply with your country’s accounting standards.
Why Accounting Matters for Startups
Planning Through Financial Estimates
A startup can be vulnerable to many risks including fraud and unrecorded transactions. Every business has to provide financial data regarding its financial estimates to banks, investors or lenders to obtain funds in return from them. Recorded financial transactions and financial estimates can help business owners to strategize a business plan which may include estimated monthly expenditure, economic forecast, and projected rate of growth of the business. This information is valuable for a startup that wants to attract more investors to invest in it.
Focus on Business development
An accounting department in place can help business owners stop worrying about their business finances and solely focus on business development. Entrepreneurs should consider creating beneficial partnerships that can help market their products or services. Further, with the help of accountants, business owners can access valuable financial data of their firm to make informed plans about its future.
Tax Deductions
It can be challenging to understand what you can deduct during tax season. An accounting system that maintains and tracks your business finances throughout the year simplifies the process. An experienced accountant can highlight tax deductions you might not know of. This is beneficial for both employees and organizations.
Determine Profitability
Accounting also helps business owners to determine its profitability in the future. Recording the company’s financial transactions, it keeps track of the company’s expenses and revenue through which business owners can make necessary changes where necessary. Further, Accounting helps analyze a business’s cash flow, ensuring enough liquidity to cover expenses and investments. A healthy cash flow is crucial for business sustainability and profitability in the long run.
Payroll Accounting
Without a payroll accounting system , it can be challenging for business owners to record their employees’ compensation such as salaries, bonuses, commissions and other utilities expenses earned by an employee. Payroll accounting can also help maintain the portion of Health insurance premium of employees, Social security taxes, and paid holidays. This way, business owners can access a database with payroll information of all its employees. Entrepreneurs should consider consulting accounting professionals before setting up an accounting system for their startup. This can help entrepreneurs access expert accounting insight from highly skilled accounting professionals.
WA has experts specializing in business process optimization and have experience in completely reinventing business processes to achieve significant cost savings. Entrepreneurs searching for expert accounting advice can consult with him here.
For Paying Taxes Correctly
A well-functioning accounting system managed by skilled accountants can help business owners prepare for tax returns easier and more accurately. This way, business owners can determine how they can maximize their tax deduction opportunities, like the Research and Experimentation Tax Credit. If you do not have an accounting system in place, you might miss out on maximizing these tax benefits for startups.
In conclusion, accounting is an important process for any startup. For startups, establishing a well-functioning accounting system and employing skilled accountants are crucial steps towards securing a safe financial future. Leveraging the expertise of skilled accountants through outsourcing, as exemplified by Work Accelerated, can significantly reduce costs and strengthen a company’s financial footing.
Work Accelerated: Your Gateway to Highly-Skilled Accountants
Business owners can rely on Work Accelerated to significantly cut down accounting costs and hire highly-skilled accountants who can help strengthen their firm’s financial foothold. This can help them focus on business development and strategic planning for their company’s growth.
Amid the surging inflation, Work Accelerated is your partner in providing accounting resources from accountants to CFOs.
WA feels the plight of the US recession and is dedicated to providing real estate owners in the US the opportunity to have access to highly skilled offshore bookkeeper resources all at a fraction of the US costs. In turn, business owners can focus on key areas that can help their company gain a competitive foothold in the corporate world.