When you're overwhelmed with all the details of launching a startup, it's easy to convince yourself that you can figure out the bookkeeping later. But "later" might be too late to save your business.
Before you launch, it's important to determine how you'll track your company's financial health on a monthly basis. Regular reports can not only alert you to potential financial problems, but also help you chart the most direct course to growth and profitability.
- Income statement: shows your revenue and expenses over a period of time
- Balance sheet: provides a snapshot of your company' liabilities, assets and overall capital on a given date
- Cash flow statement: shows how much available cash you have after accounting for all expenses
Applying What You've Learned
While tracking the information outlined above sounds simple, it can be confusing in practice — especially if your business has a heavy cash flow. With high volume, it can be difficult to determine who owes you exactly how much money and when they're required to pay. (You also need to understand what recourse you have if they're behind on their payments and act quickly to collect.)
At the same time, you have to be careful about paying your own bills. While your instinct might be to pay all invoices immediately, that could actually leave you short of cash. This will not only hurt your standing with initial investors, but might also hinder your efforts to get additional funding in the future. Investors frown on entrepreneurs who fail to manage cash flow well.
The benefits of monthly bookkeeping extend beyond keeping your startup financially afloat. You can also use the reports as a blueprint for growing out of the startup phase and into a mature, successful company. Budgeting and forecasting become much easier when you have solid financial information and expert advice.
If you have some background in bookkeeping or accounting, you might be tempted to handle your startup's books yourself. Resist that temptation. For one thing, adding bookkeeping responsibilities to everything else you'll have on your plate is a recipe for burnout. And even if you can handle those responsibilities in the beginning, they could quickly get away from you as the company grows.
It's better to partner with an outsourced bookkeeping services provider from the start. The right firm will not only help you establish good bookkeeping practices at the beginning, but will also scale their services as your company grows. And that will leave you enough time to actually enjoy the benefits of your success.