The founders guide to startup accounting
What is startup accounting?
Startup accounting services, or outsourced bookkeeping services provide a full accounting department experience, while freeing up time to focus on your startup’s core competencies. Outsourced accounting firms can assist with a myriad of finance tasks, ranging from day-to-day transaction coding, accounts payable, accounts receivable, financial statement production and cash flow forecasting or even financial modeling. Outsourced bookkeeping services often cost less than hiring your own in-house team.
Benefits of a startup-focused accounting firm
Choosing the right business structure: Deciding between a C-Corp, LLC or other business structures can be a daunting task. An outsourced accounting firm can help you make this decision based on the unique needs of your business. See here for a guide to get started.
Monitor burn rate and cash flow: Keeping your burn rate in check is essential to your startup living to see another day. Startup accounting keeps tabs on how much runway your business has, and proactively suggests ways to increase runway.
Tax credits: Startups are often eligible for tax credits like the R&D tax credit. External bookkeeping services that focus on startups are privy to these potential savings for your business, and can help proactively identify them.
Save time: As a startup founder, your primary job is to get your products and services in the hands of more customers. Accounting and bookkeeping can be a distraction in the early days. You can leverage an outsourced bookkeeping firm to save time needed to focus growing your business. Ramp’s consolidated financial platform is designed to save you even more time and money by automatically capturing receipts for all transactions above $75, negotiating and securing your SaaS contracts, while integrating with your existing accounting software, therefore saving hours off your current month-end close process. The best part? Ramp is 100% free.
Important documents to keep for your startup include:
- Receipts and memos for transactions greater than $75
- Invoices and bills paid for any purchased products
- Bank and credit card statements
- Previous tax returns
- W2 and 1099 forms
- 3 financial statements (income statement, balance sheet, cash flow statement) created by your bookkeeper
You’ll want to keep most of your records for 7 years. It’s recommended to keep your financial records saved in a place that you can come back and easily reference if you ever need to. Feel onerous? Learn more about how Ramp can make this process easier for you.
Cash-basis accounting reflects transactions the moment that cash flows in or out of a business. Accrual-basis accounting reflects revenue and expenses when incurred (independent of when cash flows in or out of the business).
Accrual accounting gives a clearer depiction of how your business is performing over a period of time, while cash accounting is more narrowly focused on the cash flowing in and out of your business. Just because you received a big check from a customer or paid a large invoice at a given point in time doesn’t necessarily mean that those transactions are attributable to just that point in time. Revenue is often recognized over a period of time. Expenses are similarly amortized over a period of time.
Ramp partners with accounting firms that specialize in working with startups. Click here to see a list of firms that might be a good fit for your business.