When you decide to start your own business it often means figuring things out as you go along, which isn’t always a bad thing. In fact this is how true innovation takes place, at least from what we have seen. But having a few aces up your sleeve when you are first starting out can really help you in the long run. After all, getting a successful startup off the ground can be tricky.
So we thought we would let you in on 7 handy accounting tips for startups that will help your business become the next big thing.
1. Get your startup registered
First you need to select the right business structure for your startup, the most common to choose from are:
- Sole trader
- Limited company
There are pros and cons to each and depending on which you choose will have different accounting and tax implications. For instance, limited companies face a 19% flat rate of tax from the first penny earned up to £50,000, gradually rising to a limit of 25% for profits over £250,000. While sole traders get a £12,570 tax allowance, but face a 40% rate on profits over £50,270.
Setting up a limited company takes more time then getting your business off the ground as a sole trader. Depending on your business size will determine which structure is most appropriate for you.
2. Choose accrual accounting
There are two main types of accounting – cash accounting and accrual. Cash accounting refers to revenue and expenses being recognised only when cash is actually received or paid. Whereas accrual accounting is when revenue is recognised when it is earned, regardless of when the payment is received, and expenses are recognised when they are incurred regardless of when they are paid.
While cash accounting might seem simpler initially, accrual is the better way to go as it offers a clearer long-term view of your business’s financial health. Plus it’s more widely used than cash accounting and, as your business grows, it often becomes a requirement.
3. Get cloud accounting software
Life can be tough, particularly if you are running your own business – so why make it harder?
The days of confusing spreadsheets are over. If you are a startup, you need to get with the times and that means cloud accounting software. There are many different platforms to choose from but whichever you choose you will be thanking us that you did. Here at Raedan we use Xero for our clients. Why you ask?
Well, because in the words of the late and great Tina Turner they are ‘simply the best’. If you are a startup unsure of which cloud software to choose then let us explain why Xero is the best accounting platform out there.
As Xero accounting experts and love how simple it makes everything. Not only does it mean all your business finance are in one place, it gives you intelligent financial insights, saves time and can be seamlessly integrated with other software for your business.
4. Keep your personal and business accounts separate
This may sound obvious but many budding entrepreneurs have fallen into the trap of using their own personal accounts. This is a big no no as it just leads to a lot of confusion come tax season. Set up a separate business account from the get go so all your business finances are organised and in one place, so you can get a crystal clear picture of how your business is tracking without shifting through endless bank statements.
5. Keep a track of your business expenses (and know what to claim)
As a startup, you’ll quickly notice expenses piling up. While investing in your business is essential for its growth, it’s crucial to track expenses accurately to prevent future headaches. Making sure to claim everything you are eligible for is a must. As the saying goes, ‘look after the pennies and the pounds will look after themselves’ and claiming the correct deductible expenses definitely adds up.
6. Keep an eye of your cash flow
Nothing will kill a start up quicker than running out of cash. Frantically trying to chase up unpaid invoices because you are unable to pay your expenses is not a situation any startup wants to have. Be sure to monitor the financial comings and goings of your business accounts to avoid this embarrassing situation. You can monitor your cashflow the easy way by using cash flow forecasting apps.
7. Keep up to date with tax regulations
Getting to tax time and having no clue what to do will cause a lot of stress. Having to pay more tax than you thought can leave a very nasty sting in the tail, especially for a new startup. So make sure to understand exactly what you owe and keep up to date with any changes that are brought in. Another factor to keep in mind is filling your tax return on time, if not you could end up facing some hefty penalties.
Now that you have all of our handy accounting tips for startups you may be thinking, do I actually need an accountant?
Well as a startup you may not need an accountant but it sure makes things a hell of a lot easier. If you are just starting out you may not want to jump right into hiring an accountant straight away. But as your business grows and the money starts rolling in it’s always a good idea to have a professional on your side to take your startup to the next level.
Remember, messy business accounts can cause some BIG issues and really hurt your growth so it is vital you stay on top of your accounting and get organised early.
If you are a startup that needs a hand with your business accounts then get in touch now. Here at Raedan we are seasoned accounting experts helping startups with their numbers game so they can keep on growing.