Startup Bookkeeping 101 For Founders

One of the worst things you can do for your startup is manage your own bookkeeping. Yep! We said it. Even worse, you ignore it.

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Proper startup bookkeeping requires a unique set of skills that most founders aren’t equipped to handle. Even if you do have a finance background, you have enough on your plate running your business. 

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As your startup grows, you need accurate records to maintain a good relationship with investors, lenders, and partners. You also need to know exactly how much money is coming in and out of your business at all times – dare we say, in real-time? Overall, manual mistakes or a lack of insight into your books can impact your startups financial health.

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Fortunately, there are easy ways you can make sure your startup's books are in order such as understanding the role that bookkeeping plays in your business and then outsourcing an expert to manage the day-to-day finances. 

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In this article, we’ll give you the 101 version of startup bookkeeping, including all of the tools you need to get up and running, and discuss why outsourcing these services might be the best option.

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What Does A Good Bookkeeper Bring To A Startup?

Starting a business and expanding it involves juggling a lot of spinning plates. Maintaining your financial books is a spinning plate that, if done poorly, can impact the spin of all of the other plates in your company. 

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Performing their basic duties isn’t the sole factor of what makes a good bookkeeper, especially for startups. Someone who excels in this role will take the burden off your shoulders so you can get back to other facets of the business. 

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A good bookkeeper also ensures that financial statements are accurate and readily available. Additionally, they can explain more complex financial terms and processes, giving you a deeper understanding of your startup’s financial standing.

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Experienced bookkeepers understand the immense growth speed of startups and can grow with the startup. A big red flag is when the person managing your books can’t keep up with the consistent changes to their workload. When they can keep up, makes minimal errors, and responds quickly, you know you’ve found a good match. 

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What Is Startup Bookkeeping?

Startup bookkeeping is different because it requires a more specialized approach. An experienced startup bookkeeper provides sound financial advice and helps you develop processes and procedures to maintain accurate records that align with the startup lifecycle – which is always changing! Some examples of bookkeeping tasks for startups include:

• Preparing financial statements and reports

• Creating budgets and tracking expenses

• Reconciling bank accounts

• Handling payroll

• Working with your tax preparer to provide necessary finance information

• Managing accounts payable and accounts receivable

For startups, having the right individual managing your books is imperative. Otherwise, things can get out of hand quickly, and you may find yourself in a financial mess. 

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Startups require meticulous record-keeping and accurate data due to how rapidly startups grow. And that's why an experienced bookkeeper is essential — they can ensure everything is in its proper place while providing the insight you need to keep growing.

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What Is Real-Time Bookkeeping?

Real-time bookkeeping is a way to make sure your books are always up-to-date. With this method, you can access accurate data and reports on an ongoing basis so that you're never in the dark about your financial situation. This allows you to make important decisions quickly and confidently based on current information.

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Access to on-demand data also ensures that your books comply with all applicable laws and regulations set by investors or lenders. All transactions are updated as they come through. The nature of the real-time process means you're never stuck waiting for reports from a third party. 

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Everything is accessible on demand. You can catch any mistakes immediately and solve the problem or seize an opportunity as soon as the numbers add up the way you need them to.

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Can I Do My Own Bookkeeping?

Bookkeeping for startups may seem simple enough, especially if your team is still small. Many founders do start out managing their own books. However, as your startup grows and adds more financial responsibilities, it can quickly become overwhelming.

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More data and more money mean the extra potential for mistakes. Mistakes that can cost your business its financial health. 

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Single Entry Vs Double Entry Bookkeeping

Single-entry bookkeeping is the process of recording financial transactions in one register. This can work for smaller startups, but double-entry bookkeeping is the way to go as your business grows and more complex transactions come into play. 

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The double-entry method requires that you record each transaction twice — once as a debit and once as a credit. With this method, debits and credits balance each other out. This ensures accuracy and helps you detect any discrepancies easily.

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While single-entry is the more straightforward form, startups should opt for double-entry. This method provides a more accurate record of finances and financial reports and aligns with accrual accounting – more on the importance of accrual-based accounting here.

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Plus, double-entry bookkeeping is GAAP-compliant, so you'll never have to worry about being out of compliance with legal requirements.

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What Does A Bookkeeper Do At A Startup?

A bookkeeper at a startup is an essential part of the team. They'll be able to provide you with customized solutions to ensure that your books are accurate and up-to-date while taking the burden off your shoulders. They'll also be able to help you create an efficient budgeting system so that you allocate your money appropriately.

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Additionally, they'll be able to provide you with valuable insight into how your business is doing financially. With this information, you'll be able to make informed decisions that will maximize the return on investments and ensure that your startup continues to grow.

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Bookkeepers do more than just manage the numbers. They act as a trusted advisor to your business, helping you make sense of complex financial data and ensuring that your operation is always running smoothly. With their help, founders and early-stage startups can stay ahead of the curve while focusing on what they do best — growing their businesses.

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Investors and lenders will also appreciate that a professional manages your business’ finances. This can go a long way in gaining their trust and winning them over. 

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What's The Difference Between Accounting And Bookkeeping Services?

These two terms are sometimes interchangeable, but they denote two very different processes. A bookkeeper records financial transactions. This includes tracking income and expenses, categorizing transactions into accounts, and preparing reports such as balance sheets and profit and loss statements.

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Accounting services cover a much broader range of activities. It includes analyzing, assessing, and interpreting financial data. Accountants analyze trends, advise on the best course of action for the company, plan for future investments, and prepare tax returns. Accounting is about more than just crunching numbers — it requires problem-solving skills and understanding how the business operates to make sound decisions.

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In short, bookkeeping is the process of collecting and recording financial data. Accounting goes a step further by interpreting that data to make informed decisions about the future of the business.

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Outsourced Bookkeeping Vs. In House Bookkeeping

While having an in-house, always-on finance expert on your hands may seem like a great idea for startups, it's not always the most effective solution. With outsourced bookkeeping services, you can access experienced professionals with specialized knowledge and technology at a fraction of the cost. 

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So, why outsource bookkeeping?

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Scalability

Scalability is often a major concern for startups, and outsourced bookkeeping services can address this. Outsourced bookkeeping services can scale with your business and handle oncoming financials, like higher AP and AR transactions, during immense growth stages. 

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More Expertise

Outsourced bookkeeping services provide access to a team of experienced professionals specializing in bookkeeping and experience in different verticles. This means you get access to the best expertise without hiring full-time staff or worrying about finding qualified freelancers.

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Cost Effectiveness 

When you outsource this service, your bookkeepers are available on an as-needed basis, so you can access the support you need without hiring full-time staff. You’re not required to pay full employee benefits, salaries, and related costs. You have all the benefits of a bookkeeper at a fraction of the cost. 

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Improved Technology

Outsourced bookkeeping services use cutting-edge technology to ensure accuracy and efficiency when managing your books. This technology is not only far superior to traditional bookkeeping methods, but it also helps reduce errors and save time.

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Be Prepared For Tax Season

Tax season is stressful for any business. With outsourced bookkeepers, you can rest easy knowing that your books are up-to-date and you will file your tax returns on time. Expert assistance provides tax help with filing and ensures you get the most out of your return. Some services begin tax prep way ahead of due dates to catch any errors before due dates.

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What Is Virtual Bookkeeping?

Virtual bookkeeping is the ideal solution for early-stage startups and founders. It provides an affordable, scalable, and professional way to manage your finances. Virtual bookkeeping involves leveraging technology and experienced professionals to manage the daily financial operations of a startup without having to physically be on location. Virtual bookkeepers take care of transaction records, bank reconciliations, processing payroll, and preparing reports through advanced software.

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4 Benefits Of Virtual Bookkeeping

1. Flexibility 

Many virtual bookkeeping services have open lines of communication through messaging systems, email, or virtual meetings. Due to the rapid speed of startups, founders can utilize these lines of communication when needed. If there happens to be a larger project that needs attention, virtual bookkeepers can adjust and focus on the project when it comes up. 

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Additionally, virtual bookkeeping makes it easier to find the right bookkeeper for your startup. It’s hard to find someone in your area, and it’s not always the best choice. Sometimes different time zones happen – this is another way flexibility comes into play. 

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Many bookkeepers change up their working hours to accommodate for their clients or at least respond to communication within the working hours of their clients.

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2. Cost Savings

When you hire a bookkeeper, you’re responsible for paying not only their salary but health benefits, 401k, and other benefits, depending on your startup's offerings. Virtual bookkeepers typically charge an hourly rate, some offer flat rates, and that’s it! Some services allow you to pay per what you need or hire part-time. 

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In 2022, the average salary of a bookkeeper was 46k, not including benefits. Salary is dependent on the level of education and experience. The higher both of those assets, the higher the salary will be. 

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3. Shareable Insights

With virtual bookkeeping, you get on-demand insights into your financial data. Another benefit of cloud accounting is sharing access between yourself (or your team) and the bookkeeper. You can quickly analyze trends, identify opportunities, and assess risk with just a few clicks. Instant access helps you make informed decisions about the future of your business, which can have a significant impact on its success.

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4. Up To Date Reporting

When you hire a virtual bookkeeper, they will generate timely reports and stay on top of your finances. Using cloud software gives anyone (that you approve!) digital access to your finances at any time. That way, they can keep everything up to date as transactions and data comes in. Accessible reports makes it easier to spot issues quickly and take action before they become serious problems.

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Bookkeeping Software Vs. Manual Bookkeeping Vs. Excel

What is bookkeeping software? It's not just an essential tool for business. It simplifies the bookkeeping process, making it easier to track expenses, manage accounts payable and receivable, and generate reports. 

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However, software has its drawbacks as well. There can be greater setup and maintenance costs, as well as a learning curve for those who are unfamiliar with the software.

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Manual bookkeeping is an all-too-common practice in small businesses and startups, but it can be time-consuming and prone to errors. It also requires significant resources to manage, including staff and technology.

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Excel bookkeeping is another option for businesses that don't have the resources to invest in sophisticated software. It's cost-effective and user-friendly. However, it lacks the accuracy and automation of dedicated finance software.

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Overall, startups should consider investing in a long-term solution. 

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Common Signs Of Bad Bookkeeping

If you're noticing any of the following signs, it might be time to reconsider your current bookkeeping practices.

• Missing records – One of the most common signs of bad bookkeeping is missing or incomplete records. This can lead to costly errors and make it difficult to track expenses and analyze financial trends.

• Poor reporting – Poorly prepared reports can cause confusion and prevent you from finding issues or opportunities in your finances.

• Lack of accuracy – Bad bookkeeping can leave you with data inaccuracies, resulting in costly mistakes and penalties.

• Unfiled taxes – Failure to file taxes on time can lead to serious consequences if not addressed quickly.

• Inadequate controls – Poor internal controls can result in fraud and financial mismanagement.

Businesses need to assess their current bookkeeping practices and invest in a reliable solution that can help them stay organized and compliant. Poor bookkeeping can have a major impact on the success of any business, so it's important to take steps to ensure your finances are in order.

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Benefits Of Bookkeeping Automation

Bookkeeping automation is the perfect solution for startups that want to upgrade their finance operations practices. Not only does it offer a wide range of benefits, but it can also help make the financial management of a business more efficient and accurate. Automation offers many benefits to businesses of all sizes, including:

• Time Saving – Automation eliminates manual data entry and other tedious tasks associated with traditional bookkeeping processes so you can save significant time and effort.

• Simplifies Tax Filings – Easily track expenses and income for better tax compliance accurately.

• Improves Productivity – Automation streamlines finance management processes and reduces data entry errors, resulting in improved accuracy and productivity.

• Provides Cloud Access – It keeps financial records within reach from anywhere at any time with cloud-based access.

• Faster Data Retrieval –  It enable businesses to quickly and easily retrieve the data and reporting they need when they need it.

• Secure File Storage – Automation helps businesses securely store financial records and other sensitive information.

If you're considering investing in bookkeeping automation, it's important to research the options available and find the right solution for your business needs. With the right automated system in place, you can ensure accuracy, compliance, and, ultimately, success for your business.

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How Much Does Bookkeeping Cost?

Bookkeeping costs depend largely on the type of service you choose. In-house bookkeeping typically requires a full-time employee and will cost from $35k to $56k per year. This doesn't include CPA services, which can add to the cost.

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Outsourced bookkeeping services can range in price, but you'll only be paying for the time and services you need. On average, outsourced services range from $500 to $25,000 per month.

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Virtual is the most cost-effective option. You'll get daily bookkeeping and reporting, automated payroll and payment processing, access to financial data analytics, and more. 

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No matter which type of startup bookkeeping service you choose, it's important to consider the cost-benefit analysis. Investing in a reliable bookkeeping solution will help reduce costs, ensure financial accuracy, and streamline processes in the long run.

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Why Do I Need A Bookkeeper In The Early Stages Of My Startup?

Startup founders can't do everything on their own. Even if you are a one-person operation, you need to outsource some of the administrative tasks so that you can focus on growing your business. 

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Bookkeeping is essential to any successful business and is especially important in the early stages of a startup. During this period of rapid growth, you need to make sure your financial processes are in order and that your books are accurate. 

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Manual and software-based solutions are available to help founders of startups in their early stages manage their finances. Still, they may not be ideal if you're strapped for time and resources. They can also be detrimental in the long run if bookkeeping mistakes become consistent due to a lack of knowledge or experience.

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Professional, outsourced bookkeeping services simplify the process and ensure the accuracy of financial data, allowing founders to focus on their core business. You can learn more about how to do that here!

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