15 Bookkeeping Best Practices for Startups to Ensure Accuracy

Imagine you’re a startup trying to attract investors. They want to see your financials, and you want to show them accurate books. But what if your records aren’t up to date? The benefits of hiring a bookkeeper become clear. This article will explore bookkeeping best practices to help you organize and maintain accurate financial records. Not only will this help you achieve your goals, but it will also ease the stress of financial management and improve your business’s overall health.  

When learning about bookkeeping best practices, consider how Haven can help. Our accounting services for small businesses are designed to support startups like yours. We can help you implement the right processes to ensure accuracy and get your financials in order.

What Exactly Do Bookkeepers Do for Startups?

Running a startup is like riding a roller coaster that you built yourself. There are twists and turns, and many things can go wrong. Financials are one of those things. A bookkeeper helps you manage your financial records to avoid unexpected drops and loopholes in your business's economic health. 

They do this by ensuring that your financial statements are accurate and up to date. If you ever need to look at your numbers to make a business decision or to provide information to an external party, a good bookkeeper will have the data ready for you. They can also help explain complex financial terms and processes so that you can better understand your startup's financial standing.   

Related Reading

• What Is Included in Bookkeeping Services
• Common Bookkeeping Mistakes
• Average Cost of Bookkeeping Services for Small Business
• Types of Bookkeeping Services
• Basic Bookkeeping for Small Business
• Outsource Bookkeeping for Small Business
• Benefits of Virtual Bookkeeping

15 Bookkeeping Best Practices for Startups To Ensure Accuracy

1. Don’t Underestimate The Basics 

If you’re just starting, you might consider using basic tools like a pen and paper or a simple spreadsheet to organize your bookkeeping. It’s old school, but this can work if you have a few transactions. Ensure you’re serious about your business and ready to graduate to a more accurate system as you grow. 

2. The Power of Spreadsheets 

In the digital age, spreadsheets offer a simple and effective way for start-ups to keep track of their financial activities. A spreadsheet can be a cost-effective alternative when starting or operating a part-time business with a limited budget. 

As your business grows and becomes more complex, you can transition to specific accounting software. With a spreadsheet, you can set up a basic accounting system to track invoicing, perform calculations, and even set up a budget. 

3. Embrace Accounting Software 

For those more serious about their business, subscribing to accounting software might be the best option. Modern accounting software often links directly to your bank account, making it an efficient way to document all necessary transactions. 

It also reduces the risk of errors and offers features like generating professional invoices, tracking debts, and ensuring everything is entered accurately for your accountant at tax season. If you opt for a cloud-based solution, you’ll enjoy real-time access to your accounts, increased data security, and the flexibility to access your financial data anytime, anywhere. 

4. Stay On Top Of Your Cash Flow 

Regardless of your accounting system, a sound system will enable better decision-making based on real-time financial insights. Identifying cash flow trends can help drive your business growth by revealing your most profitable products and services, biggest customers, highest costs, and more. The ability to monitor these trends places you in a better position to improve your profits and spot potential growth areas. 

5. Categorize Transactions 

Organizing transactions into categories is another vital bookkeeping practice for startups. Categories such as income, expenses, payroll, and taxes help startups track their spending patterns and income sources. Proper categorization also simplifies financial reporting, making it easier to understand where the money is going and how much profit the business generates. 

For instance, categorizing expenses into marketing, utilities, and supplies allows startups to identify areas where they might be overspending. This practice also helps during tax season, as it becomes easier to calculate deductions and credits. 

6. Reconcile Bank Statements Regularly 

Bank reconciliation is a critical step in bookkeeping for startups. This practice involves comparing the startup’s financial records with bank statements to ensure they match. Discrepancies between the two can indicate errors, unauthorized transactions, or missing entries. By reconciling bank statements regularly, such as monthly or weekly, startups can identify and correct issues before they escalate. 

For example, if a payment is recorded incorrectly or a bank fee goes unnoticed, reconciliation helps catch these mistakes. Staying on top of bank reconciliation ensures accurate financial records and prevents cash flow issues. 

7. Manage Invoices And Payments Efficiently 

Managing invoices and payments is a core part of bookkeeping for startups. Startups should send invoices to clients promptly and follow up on overdue payments to maintain steady cash flow. Paying vendors on time helps build strong relationships and avoid late fees. 

Implementing an invoicing system or using software to automate the process can save time and reduce errors. For example, setting up reminders for upcoming payments or tracking overdue invoices ensures nothing falls through the cracks. Proper management of invoices and expenses is crucial for financial stability and credibility. 

8. Separate Business And Personal 

Startups should always separate business and personal finances to avoid confusion and maintain clear records. Mixing the two can lead to errors, missed tax deductions, and difficulty tracking business expenses. 

Opening a dedicated business bank account and using separate credit cards for business transactions are simple steps to achieve this. Keeping business and personal finances separate simplifies bookkeeping and helps startups establish professionalism and credibility. 

9. Stay Compliant With Tax Regulations 

Compliance with tax laws is a critical aspect of bookkeeping for startups. Startups must keep accurate records to file taxes correctly and on time. Failing to comply with tax regulations can result in penalties and harm the startup’s reputation. 

Bookkeeping practices like maintaining receipts, categorizing expenses, and tracking income make it easier to calculate tax liabilities. Working with a tax professional or accountant can also ensure compliance and help startups take advantage of tax deductions. 

10. Conduct Regular Financial Reviews 

Bookkeeping for startups should include regular financial reviews to assess performance and make informed decisions. Reviewing financial records monthly or quarterly helps startups:

• Identify trends
• Track progress
• Address any issues early

For example, if a startup notices a decline in sales or an increase in expenses, it can take immediate action to improve its financial situation. Regular reviews also provide insights that help set realistic goals and plan for growth. 

11. Follow Generally Accepted Accounting Principles (Gaap). 

Generally Accepted Accounting Principles (GAAP) represent the financial recognition rules most U.S. businesses follow when preparing financial statements. GAAP rules aim to make financial reporting accurate and consistent while promoting transparency. For example, GAAP instructs the timing for recording revenue and expenses. 

GAAP requirements depend on your business’s accounting method. Suppose you are interested in expanding your business internationally. In that case, you may also want to follow International Financial Reporting Standards (IFRS), which provides a set of guiding principles for accountants worldwide. These standards are not legally binding but convenient for businesses seeking to communicate with international clients. 

12. Establish Internal Controls 

Establishing internal controls is essential for safeguarding assets, preventing fraud, and ensuring accuracy in financial reporting. Internal controls are policies and procedures implemented by businesses to manage risks and achieve operational objectives. One key aspect of internal controls is the segregation of duties, which involves dividing responsibilities among different employees to prevent individuals from having too much control over financial processes. 

For example, the person responsible for recording transactions should not be responsible for authorizing payments. Reconciling bank statements, conducting internal audits, and implementing security measures such as password protection and access controls can also help strengthen internal controls. Businesses should document their internal control procedures and regularly review and update them to adapt to changes in operations or regulations. 

13. Double-Check Your Bookkeeping With Credit Card And Bank Statements 

Double-checking all recorded transactions with bank and credit card statements each month is a good practice to minimize the risk of bookkeeping errors. However, it’s essential to remember that bank and credit card statements do not replace good bookkeeping. Banks and credit cards can also sometimes make mistakes, so having a record of your invoices and receipts is essential. 

14. Optimize A Chart Of Accounts 

Creating a chart of accounts (COA) is the key to tracking your startup's financial health. A COA lists all the accounts a business uses in its general ledger, broken into categories such as: 

• Assets
• Liabilities
• Equity
• Expenses
• Revenue

These subcategories help you gain an accurate picture of your financials. 

15. Consider Outsourcing Your Bookkeeping Services 

When you hire a bookkeeper or add the responsibilities to your list, you risk losing valuable time and increasing your administrative burden. You might also open yourself up to other issues, such as incorrect data or falling behind on your books due to your lack of specialized knowledge and training.

We recommend partnering with professional bookkeepers specializing in recordkeeping practices for your industry. Outsourcing your bookkeeping services helps you save bandwidth and resources. Instead of organizing receipts and tracking expenses, you can focus on growing your business.

When Do I Need to Hire a Professional Bookkeeper?

Business owners often try to handle their bookkeeping independently, especially when starting. But, as the business grows, this approach can create more problems than it solves. Three specific signs indicate it’s time to bring in a professional bookkeeper. The first sign is when you lack timely visibility into your financials. In this scenario, you’re likely behind on your bookkeeping and don’t have the financial data you need to make informed decisions. 

The second sign is when you cannot produce investor-ready financial statements with high confidence. This often happens when businesses maintain their financials on a cash basis, and they’re asked to provide accrual-based financial statements. The third sign is when you can’t maintain tax compliance. If filing your taxes on time has become stressful or complicated, hiring a bookkeeper is time. 

Related Reading

• Bookkeeping Tasks
• Bookkeeping vs. CPA
• Small Business Accounting Tips
• Organizing Small Business Bookkeeping
• Hiring a Bookkeeper for a Small Business
  
• Bookkeeping Services List

What to Look for in a Professional Bookkeeper

Accounting software is evolving rapidly. The bookkeeper you hire should know how to use the latest tools and be able to adapt to your start-up’s preferred system. They should also be able to explain different software options and recommend one that suits your business’s needs.

Of course, technical competency goes beyond software. Your bookkeeper should understand:

• Accounting principles
• Tax regulations
• Financial statements

To ensure your business complies with legal requirements and industry standards. 

Attention to Detail in Financial Record Keeping 

Even the most minor errors in bookkeeping can lead to serious problems. Inaccurate financial data can cause you to overpay taxes, miss crucial deadlines, or make poor business decisions. 

A professional bookkeeper pays close attention to detail. They meticulously document every transaction, categorize financial data correctly, and reconcile accounts to maintain accuracy. 

Adaptability and Flexibility in Start-up Environments 

Start-ups are known for their rapidly changing priorities. One day, you may be focused on securing funding, and the next, you could deal with a regulatory compliance issue. Your bookkeeper needs to adjust to shifting demands and be proactive in finding solutions rather than relying on standard processes. 

Time Management Skills for Meeting Deadlines 

Bookkeeping is a deadline-driven job. Your bookkeeper must be able to manage their time effectively to deliver financial reports, tax submissions, payroll, and reconciliations on schedule. Good time management also helps ensure your business runs smoothly by providing up-to-date financial data for decision-makers. 

Communication Abilities for Financial Clarity 

Your bookkeeper will work closely with you, your team, and external stakeholders such as investors and auditors. They must translate complex financial data into simple, actionable insights and communicate them. 

High Ethical Standards for Handling Sensitive Financial Data 

Trust and integrity are crucial in bookkeeping. Your bookkeeper will have access to sensitive financial information, and they must be able to handle it with the utmost confidentiality.

They should be familiar with regulatory compliance requirements and have a strong moral compass to ensure your business meets its obligations.

Book a Call to Learn More About our Accounting Services (Trusted by 400+ Startups)

Haven is a bookkeeping service that focuses on startups and small businesses. They offer various services to help manage your financials so you can focus on growing your business. Their team includes CPAs who understand the unique challenges of startups. They can help you save money with tax credits and ensure you never miss a filing deadline. 

You can get support from them via Slack 24/7, and they also offer fractional CFO services. 

Join 400+ startups who've saved millions in tax credits, countless hours of administrative work, and never missed a filing deadline. Book a call today to see how Haven can help your business. 

Related Reading

• Pros and Cons of Outsourcing Accounting Services
• Best Bookkeeping Services
• Bookkeeping Services for Startups
• Best Outsourced Bookkeeping Services
• Organizing Small Business Bookkeeping
• Bookkeeping Services List
• Bookkeeping Packages for Small Business
• Best Accountant for Small Business

‍

‍