Starting a new business is exciting, but it is also a challenging journey. There is a lot of stuff that you need to manage on your own. The key is to manage things in a planned way. One of the important aspects of business is managing your books effectively through appropriate accounting practices. Accounting, in simple words, is the recording of all the monetary transactions of a business. The accounting process summarizes and analyzes these transactions to generate financial statements. Businesses need proper accounting in order to keep records of their financial transactions and make informed business decisions. Furthermore, it also enables businesses to comply with tax laws and other financial regulations.
7 basic accounting guidelines for startups
Most entrepreneurs or small business owners know nothing about accounting. However, with adequate knowledge and resources, accounting can be manageable.
We are providing a little guide below that will provide founders with essential information with respect to accounting. The following basic guidelines can be used as a starting point for your startup’s accounting. It will build a strong financial foundation and pave the way for your future business success.
1. Choose a suitable accounting method
There are two main accounting methods: cash accounting and accrual accounting. Cash accounting is based on the receipt and payment of cash. In contrast, accrual accounting is based on when income is earned or expenses are incurred.
For instance, under cash accounting, if you sell the goods and deliver them today but no cash is received, you don’t record the revenue. Revenue is documented when the business receives the cash. However, under accrual accounting, revenue is recognized on the same day goods are sold and delivered. The timing of the cash receipt is not relevant under accrual accounting. Under generally accepted accounting principles, experts do not recommend cash-based accounting. Therefore, for proper accounting and compliance, businesses should use accrual accounting. However, one should obtain expert advice on this matter.
2. Separate business and personal finances
You need to draw a line between yourself (as the owner) and the business. Separate everything from your personal and business finances. For this purpose, open a separate bank account for business transactions. You should use this account for all business transactions.
3. Look for suitable accounting software or app
As a small business owner, it is worth considering the use of accounting software. This can save you a lot of time from bookkeeping. You can generate invoices in a short time, and you can also generate reports in a prompt fashion. There are many accounting software programs available; however, do proper research before buying any one of them. Intuit QuickBooks and Xero are two of the most widely used accounting programs. Most of these accounting programs provide guidelines for new users; therefore, learning to use them is not a big deal.
4. Familiarize yourself with taxes and other compliance requirements
It is always a good idea to stay up-to-date and familiarize yourself with taxes and other regulatory requirements specific to your business. There can be several taxes depending on your business, for instance, corporate tax, value-added tax, and so on. There are a lot of tax requirements; therefore, try consulting a tax professional to avoid any fines and penalties.
5. Set up a budget
Set up a short-term budget (say for a year) and a long-term budget for your income and expenses. Setting up your expected income and expenses will let you plan for the future and also let you make informed financial decisions.
6. Monitor and manage cash flow
A business can survive even if it suffers a loss; however, it cannot survive without cash. Therefore, managing cash flows is the most important element to ensuring that you have enough funds to cover all your expenses for the foreseeable future.
7. Seek help from a professional
Do not hesitate to seek advice from an accounting professional or a business advisor. In this way, you will get all the necessary advice and support with respect to your accounting needs. Furthermore, you will be able to focus on your business rather than accounting. Creative Zone Tax Accounting is the best option for seeking help in accounting and taxation matters.
Accounting is the key to making informed business decisions needed for the future success of the business. Finding basic accounting guidelines for startups is difficult. Small business owners might find it difficult to know where to start for their business’s accounting needs.
The first step is to choose a suitable accounting method based on the nature of the business. Open a separate bank account for your business to separate business finances from personal finances. Use accounting software if it is suitable for your business. Familiarize yourself with tax laws and other financial regulations. It is always beneficial to make a budget for your future revenues and expenses. Furthermore, based on your budget, manage cash flows to ensure you have enough funds for upcoming expenses. Finally, don’t forget to seek assistance from an expert if needed.
Seek help from Creative Zone Tax Accounting
From setting up your books to financial statements, we will do anything to keep your books clean and compliant too. Furthermore, we will assist you in all your taxation matters, whether it be corporate tax or value-added tax. In the UAE, there are numerous penalties for non-compliance with tax laws. Contact us now to avoid penalties and stay focused on your business.