Most modern startup companies are known for their innovative spirit and willingness to create exciting and disruptive solutions for the industry they represent. However, like any other business, startups are faced with a variety of challenges as they develop, especially when it comes to establishing a strong financial foundation.
Having the right accounting resources at their disposal is critical and is often one of the most critical elements responsible for positioning a startup business for success. This is why it’s so important to make sure your startup business understands the fundamentals of creating a strong accounting department and knowing where to look when sourcing finance professionals.
While entrepreneurs are often known for their creativity and innovation, they aren’t always adept at financial planning. Still, it’s crucial for startup business owners to apply certain accounting fundamentals to their business to ensure its long-term success. Some of the important areas your business should focus on include:
To help your business maintain accurate financial records, it’s important to apply best bookkeeping practices. This will provide tax auditors with a comprehensive list of all business activity and can be essential when working with banks and other financial institutions to provide adequate funding for the organization.
Some of the essential financial records your business should be regularly keeping include:
Journal entries are another common accounting practice that businesses manage. They help organize financial transactions in chronological order and include details like invoice date, any impacted accounts, and any pertinent details related to the movement of funds.
Your business’s general ledger is a centralized repository of all of your startup's financial information. This will typically reference the collection of accounts your business has and show a clear summary of all transitions applied to revenue and expense accounts.
It’s important to prepare trial balances throughout the year that summarize a list of all accounts and their balances to help find any errors that may be present in your accounting system while helping you to keep highly accurate records
You’ll also need to reconcile all bank statements with any internal records you maintain. At the end of each accounting period, closing entries will also need to be made to move any net income or loss statements so that revenue and expense accounts can be reset for the next fiscal year.
As startup companies begin to grow, it’s important for them to adopt more complicated financial procedures in order to help them scale into new markets and grow their revenue streams.
Gaining access to funding is a fundamental milestone for all businesses, especially for startup companies that often incur substantial costs to get their business off the ground. To help facilitate capital raising, companies need to maintain accurate financial records and forecasts to attract potential investors and get more favorable financing terms from banks and other financial institutions.
As the businesses begin raising capital or using equity to finance the company, ownership shares will need to be issued to various investors. Accounting departments play an important role during these transactions and are regularly involved in tracking and managing equity ownership over time.
Of course, all businesses need to file their taxes every year. Tax compliance for businesses can be complex and require highly accurate processes to management properly. All startup companies should be aware of the laws and regulations where they operate and ensure their taxes are filed on time every year to avoid penalties and costly fines.
Another important aspect of fulfilling tax and legal obligations is ensuring that all organization employees are classified correctly. This involves correctly grouping employees and independent contractors in the right categories while ensuring all applicable individuals receive access to benefits like health insurance, government-mandated paid time off, and any workers’ compensation owed to them.
As companies grow, they may operate across multiple jurisdictions and be subject to multiple state and country tax laws and regulations. Startup companies and their accounting teams need to have a clear understanding of these unique requirements and ensure they maintain separate accounting records for each location so that they can file their taxes accurately every year.
While having a great accounting team is important for all businesses, effective tools and solutions are also available to help organizations keep their finances organized.
As companies grow, they may operate across multiple jurisdictions and be subject to multiple state and country tax laws and regulations. Startup companies and their accounting teams need to have a clear understanding of these unique requirements and ensure they maintain separate accounting records for each location so that they can file their taxes accurately every year.
There are countless tools available for businesses to help simplify their accounting processes. However, it’s essential to consider a few things before making any long-term investments.
First, you’ll want to consider that not all industries have the same accounting needs. Because of this, some tools you may be considering might not be specifically designed for the industry you represent. This applies to using professional outsourcing services that may help you find additional staffing, but the talent you have access to might not fully understand the requirements of your business.
Another thing you’ll want to look into before investing in a new accounting solution is user-friendliness and integration capabilities. If you don’t have a dedicated accounting team, you must have a solution that makes sense while giving you the necessary value. It’s also a smart idea to make sure whatever tool you invest in can easily integrate into your current tech stack and avoid using multiple separate solutions when one unified solution may be the better answer.
Even though modern accounting software can help growing businesses automate many of their financial processes, hiring a dedicated accounting team at some point will be essential to continue to scale. Below are some of the most common positions businesses look for when establishing their accounting department:
CFOs (Chief Financial Officers) are strategic executive-level employees who oversee all areas of the business’s financial needs. This includes hiring and managing a team of accounting professionals and establishing critical financial strategies to ensure the business’s long-term success. CFOs also play critical roles in driving fundraising efforts and investor relations.
Business controllers and comptrollers are another important high-level position in an organization’s accounting department. A controller is who oversees the day-to-day activities of all accounting operations and helps to plan and execute all financial reporting requirements while ensuring the accuracy and efficiency of all supporting processes.
Bookkeepers are typically responsible for helping to carry out and record all financial transactions for the organization. This includes managing all invoicing responsibilities, processing payments, and organizing business receipts. Depending on the organization's structure, bookkeepers can also handle general ledger reporting while reconciling all bank statements and tracking expenses.
One of the largest challenges of developing a highly structured accounting department is the financial investment required to maintain it.
However, there are some effective strategies startup companies can implement to help them reduce their spending while still getting the accuracy and efficiency they need to manage their business finances:
Building a highly efficient accounting department is essential to growing your organization successfully. However, considering the wide range of responsibilities necessary to keep a business operational, you must ensure you manage your resources effectively.
At Philippines Accountant, we specialize in matching businesses with highly qualified accounting professionals located overseas. Blending our years of experience in talent acquisition with immediate access to top industry professionals, your business can significantly reduce costs while creating a a highly efficient accounting solution that helps your business scale.
Contact Philippines Accountant today for a free staffing and matchmaking consultation.