Accounting for Startups
21 Feb

Accounting for startups

In the beginning there is the outstanding idea or/and the unique selling proposition that promises big profits. After the foundation of the Startups the focus is then on gaining customers and refining the business model and generating income. In the end, however, it is the finances that support all these activities and ultimately determine success or failure.
In order to keep these under control as a founder, regulated accounting for start-ups is needed. In fact, there is much more to it than just carrying out the correct debit and credit posting.

Accounting for startups is especially important because in order to keep accurate financial records, you need to implement an accounting system that allows you to organise your financial transactions because and as this part of your business becomes more complex.

Why is accounting important for the start-up?

Accounting is an essential part of any business, even in the start-up phase. Once the idea is off the ground, the structure of the business has been determined and the basic logistics are fixed, one has to think about accounting. Since the success of a start-up ultimately depends on money, the way the young company manages finances will play a supporting role in the viability of the company.

Although it may seem that initially the expenses are not complex enough to require such formal management, early implementation can bring significant benefits to the business in the long run. Some of the advantages of setting up an accounting system in the start-up phase of your business are:

  • Optimal financial organisation
  • Retrievable presentation of the financial situation without outside help
  • Increased efficiency in all processes related to financial transactions
  • Higher probability of obtaining funding from investors
  • Early identification of financial risks or vulnerabilities
  • Better prospects for financial stability
  • Detailed records of financial history to draw lessons for the future
  • Keeping track of debts
  • To enable comparisons of the company with the competition

The risks without proper accounting for start-ups

If the start-up fails to implement the accounting processes from the beginning, this can have costly consequences. The risks of neglecting accounting include:

  • Difficult forecasts
  • Lack of responsiveness to crises and opportunities
  • Uncertainty about the financial situation of the company leads to wrong decisions
  • Inability to provide investors with detailed financial data
  • Limited financial history to refer to
  • Potential problems with tax authorities

For these and other reasons, it is recommended that start-ups make accounting a priority from the beginning. This does not mean that accounting has to be a big, intimidating process. The sooner you start, the sooner accounting has a chance to grow with the business.

Accounting vs. bookkeeping for start-ups

Despite the common misconception, bookkeeping and accounting are not the same thing. However, they are both critical to the financial health of your business.

Bookkeeping: Daily tracking of company finances and maintenance of records. A bookkeeper's tasks may include collecting and recording invoices from customers, paying your suppliers, reconciling bank accounts and much more.

Bookkeeping, on the other hand, is responsible for the orderly recording of all business transactions on the basis of documents. It thus reflects the status of a company in figures and is therefore one of the most important sources of information.

Controlling for start-ups

Accounting for start-ups is the basis for the controlling. This determines the causes of deviations from the plan and sets up measures for optimisation. A company must constantly check its data, compare it and initiate changes. The best tool for this is the bookkeeping: all the company's figures can be found here. A report on costs and revenues can be created on the basis of the individual bookings by putting them into a cost type and cost centre structure.

Accounting software for start-ups

Of course, there is a wide range of software regarding accounting for start-ups. These can be simple solutions from the cloud or professional programmes from well-known providers.
However, the highest chance of achieving end-to-end automation while maintaining the highest information density is with the introduction of a ERP software given.

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