How To Easily Track Your Startup’s Finances

Congratulations on turning your business idea into a lucrative startup. Running a small business seems so easy. You come in, develop a new product or service, present it to an investor or make it available in the market, and boom, you’ve started making thousands or millions in sales. Now, you’re thinking about ways to scale your startup.

For most startup owners, the main focus is acquiring customers and generating revenue. But where’s the accountant or bookkeeper? Who keeps track of the finances? Yes, your small business’s finances are also crucial to your success. Someone must keep track of your startup’s financial activities regularly.

This guide to financial tracking or bookkeeping for startups will help small business owners better understand why it’s essential to prioritize business finances and learn how to carry on with the task properly.

What is bookkeeping? 

Accounting and bookkeeping are both critical processes to a business’s financial health. They aren’t the same thing, though. Bookkeeping deals with financial record tracking. Accounting, on the other hand, interprets financial records. (1)

Bookkeeping’s main purpose is to keep track of income, expenses, and payroll, among other financial records. For example, bookkeeping will ensure that a bill is paid and recorded when you receive one from one of your vendors. It also uses sales report template Excel or the reporting features of software programs to give you a no-nonsense, comprehensive look into your small business’s entire financial makeup. (2)

The two most important aspects of a startup’s finances that bookkeeping keeps tabs on are income or accounts receivable and expenses or accounts payable. (2)

The importance of tracking startup finances 

Why is it so important for small businesses, especially startups, to track their finances accurately? The reason is that bookkeeping gives business owners the best possible understanding of their company’s financial situation. For instance, consistent financial tracking will help you identify areas where your business is spending more than necessary.

The need to track startup finances becomes especially pressing when considering that many startups fail because of running out of cash. (3)

Startup financial tracking tips 

Here are a few startup financial tracking tips to help you stay on top of your business’s finances:

1. Open a new business bank account

Opening a business bank account should be a priority for all business owners. It’s an essential step to take for startups.

However, many new business owners decide to have the same bank account for their business and personal finances for convenience. Avoid such a common mistake. Instead, keep personal funds separate from business funds. That way, you won’t be wasting precious time processing personal expenses or transactions within your business’s bookkeeping.

Keeping the same account for business and personal expenses is even worse if you’re outsourcing bookkeeping and paying someone to perform it for you. Mixed personal and business expenses can be confusing for your bookkeeper, resulting in financial record tracking errors. Also, having a bank account containing only business transactions for your business keeps the account nice and tidy. It also helps you avoid getting tempted to allocate personal funds to the business.

2. Focus on sales and expenses 

Most of the new businesses’ transactions will likely be revolving around sales and expenses. Tracking startup finances means staying on top of these numbers.

In terms of expenses, startup owners must be able to recognize the tax deductibles. These are the types of expenses that you can claim against your profit to reduce tax. Generally, these are the expenses that relate to the business’s income generation operations directly.

3. Record all payments 

Besides sales and expenses, startup owners also want to stay on top of all payments. Payments you’ve made and received both should be recorded.

Tracking and recording all payments made and received is essential because you can refer to them should you encounter any discrepancy. Also, if you get audited, payment records can act as proof of sales and expenses. 

Also, make sure that every cash payment received goes into your business bank account. If you’re keeping petty cash, you can keep cash payments received there too. Do these before spending the cash. Unfortunately, many new business owners commit the mistake of taking cash payments received right away to buy supplies, causing a mess in their finances tracking system.

To make the tracking and recording of payments a more straightforward process, consider using an invoicing system. It will help you avoid making errors and losing money due to failure to collect payables from clients or customers.

4. Use a payroll software program 

Like an invoicing system, a payroll software program can also be of great help when keeping track of a startup’s finances. As you know, ensuring that your startup team members receive their salaries on time is the responsible thing to do. However, on top of that, paying wages responsibly also benefits your business by helping you avoid incurring payroll tax fines, which can be a real waste of startup funds.

Many new businesses still do their payrolls manually. However, if you want to make the task quick and easy, there are several reasonably priced payroll apps that you can use out there.

5. Use a bookkeeping software 

Tracking financial records can be done manually. But like payroll, it can be done better with the help of an app. That’s why the final tip is to choose and use the right bookkeeping software. Of course, there’s nothing wrong with using a spreadsheet. That’s fine. In fact, it’s sufficient, especially if your goal is only to determine your startup’s income and expenses.

However, if you want to have the ability to analyze the data from your financial records and really get a clear picture of your business’s performance, upgrading to bookkeeping software can be significantly beneficial. Cash flow, sales by product line, sales by customer, total sales, profitability, and sales tax are some of the data that you can query through a bookkeeping software program. Aside from data analysis, a bookkeeping app’s automation features also save you a significant amount of time that you can use to take care of other important aspects of your business. (4)

Final Thoughts 

Many new businesses fail because of money mismanagement. That’s because not being able to stay on top of a startup’s finances affects business decisions and, ultimately, profitability and success. Hopefully, what you’ve learned here is enough to help you avoid unforeseen debts and have enough money, so your business thrives and grows.

References

1. “Bookkeeping Vs. Account: What’s The Difference?”
2. “The Beginner’s Guide To Bookkeeping”
3. “5 Reasons Startups Fail”
4. “A Guide To Accounting Software Features And Benefits”