Starting a new business is fun and exhilarating at the same time. This is the time when entrepreneurs often find themselves juggling different roles in the company – from heading the process to managing the marketing. This is so because most startups are a little cash-strapped and thus they end up opting for a lean team with minimal overhead costs. They are forced to make tough decisions as well – such as the one where they ask themselves, “Do I really need accounting?” The short answer: Yes, you do!

Types of Accounting

If you’re going through this blog, chances are that you either own a startup or are planning to come up with one pretty soon. So, here are a few different types of accounting to help you through.

• Financial accounting: As the name implies, financial accounting is all about summarizing a business’s financial activities and putting them into a balance sheet. These documents are later audited by an external regulator and reflect a company’s economic performance.
• Managerial accounting: Also called management accounting, managerial accounting uses the same process as financial accounting but the records are intended for internal stakeholders only. This information is used to make informed decisions.
• Tax accounting: This is used to track all incoming and outgoing funds associated with the operations part of your startup and its effect on the tax burden.
• Cost accounting: This records all financial information pertaining to the costs associated with producing your products or services. This will eventually help your business/ startup to budget and analyze business performance.

An analysis: Why do young startups need accounting?

Every startup needs to follow updated accounting practices, so that its founders, financial managers, and business leaders get a clear idea and real-time picture of the company’s financial health. Opting for accounting creates scope for nimble analyses, which in turn helps in identifying opportunities for improvement, and in decision making. Here’s more on that.

• Heightens financial transparency: Accounting brings transparency and offers a clear view of the startup’s monetary standing. Regular and thorough accounting helps entrepreneurs/ founders keep a tab on revenues, assets, expenses, and liabilities, thereby helping in insightful decision-making.
• Builds investor confidence: Investors will invest in your venture only when they have a clear understanding/ insight into the startup’s financial health. Working with a professional accounting firm ensures accuracy and transparency – crucial to garnering investor confidence. In fact, regularly maintained and audited accounts are an absolute must.
• Ensures legal compliance: Accounting has more to it than simply keeping a record of expenses and revenue. It is also about complying with statutory requirements such as handling payroll and taxation. Since most startups are a little understaffed, teaming up with an accounting firm helps ensure conformity with laws and avoid legal troubles.
• Helps in strategic planning: Thorough accounting offers a wealth of information and in turn helps in devising strategies to lower overhead costs and plan growth expansion. Moreover, consistent accounting contributes to sustainability – helping you keep tabs on cash flow and ensuring that you have enough working capital to meet daily operations.

Key takeaway

In the nascent stage of the startup, managing finances/ accounting by yourself can seem like a tempting choice, and rightly so. In fact, you’d find many online bookkeeping tools to help you with the basics, though they are not capable enough to navigate modern tax laws. So, when your business grows and financial matters become a bit more intricate, opting for professional accounting services becomes a lot more necessary.

Basta & Company is a leading San Francisco-based CPA firm where we care about your business as if it’s our own. We work in tandem with small businesses and young startups to help them heighten profitability and navigate the difficult world of taxes. Give us a try, now!

Visit our website https://www.bastacpa.com/new-business-advisory/ to learn more about start-up business accounting services in San Francisco, CA