June 10, 2022
Proper financial accounting is one of the most crucial practices for business growth and sustenance. As a startup, you need to get your accounting right from the onset as it helps you manage other vital business aspects, such as budgeting, tax, etc., more appropriately.
Although accounting can be tasking, learning some basic accounting essentials helps you avoid costly mistakes at this sensitive stage of your business. And in this article, we’ve provided detailed information on accounting essentials for startups to guide you on your new business journey.
Choosing a business structure comes first in the list of startup basics. A business structure sets a template for how your business will run. It will shape every decision you make afterward, so it is important to get it right. The different types of business structures you can explore in Canada include:
A sole proprietorship describes a type of business owned and managed by an individual. As a sole proprietor, you’re responsible for the business profits and liabilities.
This is the simplest type of business structure; not much legal work is required. More so, it’s best suited if you choose to run a small-scale business.
A partnership is a business arrangement that involves two or more individuals or corporations. This means that two or more persons or corporations own and operate the business.
A Canadian partnership operates based on the provincial law of the business residence. Regarding taxation, a partnership is not treated as a separate entity which means that the partners bear profits and losses.
A corporation operates as a separate legal entity, meaning that it is seen as different from its shareholders. Unlike other business structures, a corporation bears its liabilities, except in certain rare circumstances.
In Canada, a corporation has the legal right to own properties, carry out transactions, and lend and borrow. It can also sue or be sued.
An accounting method helps you track the money that comes into your business. Before filing your first business tax return, you’ll need to choose one of two possible accounting methods; the cash method and the accrual method.
This is a basic accounting method where record-keeping is based on the actual time of incoming or outgoing transactions. In other words, you record transactions when money is received or paid.
The accrual method records money that is “earned” irrespective of whether or not payment is received. For instance, if there’s a transaction made with payment scheduled for a later date, the transaction goes into the record as earnings.
This method may be more appropriate if you plan to run your business on a large scale, involving shareholders. It makes for accurate business reporting, planning, and forecasting.
As a startup, you might most likely face the challenge of choosing the best accounting method, and it’s advisable to seek expert advice. As a professional accounting firm, Accountero works with your business goals to offer the best guidance.
Although every dime counts at every stage of business, it seems more critical at the startup stage because the business is most likely still trying to stand on its feet. Hence, you need to keep financial records as accurately and securely as possible.
Keeping financial records entails handling your documents with the utmost care, and it helps you know how profitable your business is. Here is a list of documents you need to keep:
Effective bookkeeping refers to keeping records of financial transactions daily to keep your financial record up to date and not necessarily when you need to file a tax. Here are some practices that can help you be effective in bookkeeping:
Make sure you record every transaction, whether payables or receivables. Noting down these records as soon as they are carried out might be the best option to help you not forget any detail. Procrastination most times leads to inefficiency.
Organize transactions in different categories to make them easy to identify and reference. That way, it is easy to use them while filing your tax or extracting data for calculations.
As a startup, it’s okay to get goods on credit because you might not have all the cash you need to push your business. However, as much as you can, avoid credits. Pay upfront if the money is available and pay up credits as soon as the cash is available.
It is risky to handle unpaid invoices carelessly because it can affect your cash flow as a startup. Good cash flow keeps your business alive, so check who’s on your credit list to reach out to them from time to time.
When you digitize your receipts, it is easier to retrieve them during tax time, making tax preparation much easier. Apart from ease of access and reference, storing your receipts electronically also helps you keep them safe and secure for future use.
Reviewing your business’ financial health from time to time is an essential accounting tip you wouldn’t want to overlook. How do you know if you’re making progress and what areas to strengthen? The ultimate answer remains regular performance review.
To ensure you’re on the right track for growth, you’ll need all the support you can get at this stage, and a CFO can fill that gap. As a startup, you may struggle to meet the financial demands of an in-house CFO, so a fractional CFO becomes the next option. A fractional CFO means that you request the services of the CFO only when you have the need, and it’s an excellent way to cut down service costs.
Due to financial challenges, most startups look for cheaper ways to handle their operations instead of hiring professionals. Most times, they resort to the DIY approach using guides. While this seems more cost-effective, it comes with its fair share of risks, especially when it involves sensitive information such as accounting data.
First, you might not be as knowledgeable as required to keep your accounting and bookkeeping processes correct and accurate. Moreover, as a startup founder, trying to handle everything can be a lot of work and may not lead to maximum productivity.
Because you need your accounting and bookkeeping functions carried out expertly to achieve the best results, outsourcing to accounting professionals may be a better option. A professional accountant won’t only handle your taxes effectively but also ensure you get the best guide to make progress in your business.
Remember, taxation can be a bit complicated when it’s about business rather than an individual. A professional understands the taxation system in Canada, including tax laws, tax rates, tax brackets in Canada, and every other detail.
With this in-depth tax information, you can rest assured your business will not experience tax problems. Accountero specializes in small business accounting, providing tax advice and helping them achieve their growth objectives by skillfully managing their finances.
These accounting essentials are not just relevant for startups, but also for businesses at all stages of operation. However, the startup stage is the foundation-laying stage of every business, and every move needs to be guided. You can reach out to a financial expert now for the best guidance and assistance in your business accounting.
Accountero helps startups and growth-focused businesses with their finances. Accountero is a ‘built for founders’ financial platform that offers digital bookkeeping on a free tech-stack, high-level reports for business owners, forecasting tools and on-demand access to professionals like fractional CFOs, tax advisors, funding experts and more, who can help with tax planning. Talk to us today so we can help you to stay focused on your business growth, while our experts manage the finances.
Accountero is a tech-powered service provider offering bookkeeping, tax advisory and fractional CFO. Accountero is not a public accounting firm and does not offer services that require a public accounting practice license.