Accounting is the backbone of any business; once it’s broken, your business fails. Numerous small businesses pop up almost daily in the UK, whereas only a few survive the demanding market. One reason behind their failure is not focusing on the accounting needs of a startup.
Entrepreneurs may have innovative business ideas but do not necessarily have to be good with accounting. Here comes the need for startup accountants in the Uk.
Is accounting important for startups?
Most startups in the UK close down due to insufficient cash flow, and the right accounting ensures you never have a cash deficit interfering with your success track. It includes keeping accurate financial records, examining cash flow, guiding you with business structure, and identifying risks and growth opportunities.
The key benefits of accounting for startups are listed below:
- It allows business owners to see where they stand and their financial performance
- Accounting helps businesses keep track of their debts and receivables for the goods sold or services offered
- Business owners use financial accounting to transfer financial information to external organizations or people who need it, like banks, for approving loans.
- It helps you understand the strengths and weaknesses of the company
- Accounting information gives you a glance at future investment opportunities and risks and allows you to stand shoulder-to-shoulder with competitors
Accounting tips for startups
Make a business plan
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Creating a business plan is the most important thing while starting a business. It helps you outline your business goals, strategies and your objectives to achieve them. The key components include an executive summary, market analysis, business structure and operations, and financial projections.
Register your business
Before starting a business in the UK, you must decide on the company’s legal structure, which is mainly three types: sole trader, limited company, and partnership. Limited companies must register with Companies House.
Have a budget
It is always essential to have a budget before starting a new venture and sticking to it. It must include a realistic value for your sales and expenses. Track your sales to adjust the budget, if needed and track your expenses to ensure your business becomes profitable.
Open a separate business bank account.
A business bank account ensures you don’t mix up business and personal expenses and struggle to find the business profits and prepare tax returns.
Choose an accounting method.
Usually, there are two types of accounting methods: Cash-based and accrual-based.
Cash-based accounting method records your cash inflows and outflows during a particular time. Accrual-based accounting records revenue when generated and expenses when incurred.
Ask your startup accountant to help you select the suitable accounting method for your startup.
Track your income and expenses
Methodically tracking your income and expenses is very important for startups. It helps you keep tabs on the company’s financial status and help you meet your goals.
Additionally, always complete a bank reconciliation to keep track of your finances more efficiently.
Claim business expenses
For startups, saving every penny is vital for business growth. You can save on taxes by claiming business expenses, like the cost of equipment, office supplies, travel, etc., on your tax return. HMRC grants tax relief on certain business expenses.
File tax returns on time
Whatever business you run, you must submit a tax return file on time to HMRC. Make sure you are paying the correct taxes and ask an expert to help you reduce tax liability by considering tax reliefs and grants in the country.
Understand your financial statements
Every business has three types of financial statements: cash flow statement, profit and loss statement, and balance sheet. Startup owners must analyse the statements regularly to understand their financial position and areas of improvement.
Keep financial records updated.
It is essential to keep your accounting books updated time-to-time. It keeps track of your expenses and profits and gives a glimpse of a business’s financial health. Additionally, this information is vital while seeking funding, investments, or making business decisions.
If you are not hiring an accountant, at least get a bookkeeper for your startup. They are experienced in handling similar businesses and understand your needs and government regulations.
However, you can always do the accounting yourself if you have the basic concepts. Plus, accounting software can be a great help in eliminating time-taking manual tasks.
Furthermore, startup owners can look for third-party companies and outsource their accounting needs. They charge you less compared to in-house employees and have more experience in the industry.
Whatever way you are choosing for accounting tasks in the business, make sure you stay on top of your finances.