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Accounting for Start Ups

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Accounting is by far, one of most important aspects of starting and operating a business. It’s so easy to get caught up in the start up glamorous tasks of designing a business card or choosing a business name, yet without a solid understanding of the numbers you will not survive.

The streets of entrepreneurship are littered with former business owners who ignored the financial side of business only to discover too late they were operating at a loss not a profit. Without a firm grasp of your margins and cash flow, you can price yourself right out of the market.

Over 28% of businesses declaring bankruptcy cite problems with the financial structure of the company as the main cause of failure, according to a Small Business Administration study, "Financial Difficulties of Small Businesses and Reasons for Their Failure." Take the responsibility of entrepreneurship by learning the basics of accounting.

Methods of Accounting

There are only two generally accepted accounting methods: cash and accrual accounting. Some small businesses have the option of choosing between these two, while other kinds are legally required to use the accrual method.

The accrual method shows your real-time financial health and most accounting software packages simplify the process of accrual accounting. Moving from the cash system to accrual can be as easy as checking a box in your accounting software, which will do the rest for you. However, if you run a simple and low-revenue business, don't feel pressured to adopt the accrual system.

Hiring an Accounting Pro

Unless you are a numbers wiz or have a degree in accounting, you will need to employee the services of a professional to set up your accounting system. To get a grasp on your small business accounting and financials, should you hire a bookkeeper or an accountant?

Each start up situation is unique but generally most start ups can begin with bookkeeper. A bookkeeper's services make sense for average start-ups with no plans on building an empire. The bookkeeper will help you start off with a good record keeping system, handle financial transactions, and produce financial statements.

Hiring an accountant makes sense for growing companies, businesses with more complex business structures (such as limited liability companies) and when you add additional employees to your company.

Initially, you may start your business part-time or at home to keep expenses low. The cost of an accountant on a monthly basis can be too much for a one-person business. Either prepare the books yourself or have a bookkeeper involved in the process. Use the accountant for your year-end tax planning.

When you do plan to hire an accountant or bookkeeper, remember to find one you can trust and build a solid relationship with because you need their advice and guidance in steering your business now and in the future.

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