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Sound Financial Record-Keeping for Startups: Strategies & Tips from HnO Consulting

Saving receipts and thinking meta about the nature of spend and income... what's not to love, right? Financial record-keeping is super easy to do really poorly, and really tough to do well. This is because there's usually not a lot of time or effort put into bookkeeping, but there is the very real pressure to "get the books done already" come tax time, to secure a loan, etc.

We get it... a nice and tidy income statement doesn't actually generate income. But proper financial record-keeping is crucial for startups to not just stay compliant with regulations, but more importantly to set the stage for better financial analysis and ultimately more informed business decisions. Most startups struggle with accounting and bookkeeping, especially if they don't have the right expertise in-house or at-hand. In this blog post, we'll share some tips on financial record-keeping for startups.

Spoiler alert - unless you REALLY love to operate simultaneously in the weeds and in the clouds on accounting items, you'll want some help.

Use cloud-based accounting software

The first and easiest thing to do is use one of the many cloud-based accounting software tools on the market. Cloud-based accounting tools actually make it easy to keep track of your financial records, even if you don't have an accounting background. I know several open-minded folks who basically learned how to become a bookkeeper simply by agreeing to take over keeping the books. The amount of support available both in-software and on the web is staggering.

Besides being easy to use, most cloud-based accounting systems now have workable integrations with your existing business partners, so automating entries is much easier than even two years ago. Linking up your bank account and a third-party invoice system to your accounting software will save you (or your bookkeeper) hours of clerical work.

These integrations not only reduce workload, but provide you with real-time financial insights that can help you make informed business decisions. You can close the books within days (or hours!) of month-end, and always have a clear mid-month picture of finances.

As an example, I know a very large company that used Quickbooks Online (QBO) up until their IPO. They looked at using a more "sophisticated" or "mature" system, but realized that losing the flexibility and off-the-shelf integrations simply in the name of "feeling like a grownup company" didn't justify the cost... which was on the order of an exta $75,000 a year in software fees if they were to upgrade.

We've talked a lot about the benefits. On the flip side, not choosing the right accounting software really puts you at risk of having things spiral out of control. Something that is easy to use and maintain will help reduce the hurdle to creating and maintaining accurate financial statements.

Separate business and personal finances

We get it - as a single-member LLC, all of your income is pass-thru and so sometimes it can feel a bit like much ado over nothing to keep all these administrative structures in place. But one of the biggest mistakes that startups make is mixing business and personal finances.

There reasons are really too many to delve into, but it is critical to maintain a separate legal boundry between yourself and your LLC. We're not lawyers, so we'll leave it at that from a legal perspective.

As far as finances, it's essential to separate your business and personal finances to ensure that you have a clear understanding of your financial situation. Accurate record-keeping is necessary for accurate taxes and for managing your business. Period.

Properly track of all your financial transactions

We get it - it's not fun to save receipts and enter them into an accounting system (well, not for most people... we're of the strange ilk who actually like it!)

Nonetheless, it's essential to keep track of all your financial transactions, including both income and expenses. This also means both cash and non-cash transactions, such as credit card transactions and vendor invoices. Setting up a system for tracking your financial transactions in a meaningful way will not only help ensure that you have accurate financial records, but it will also support financial analysis later on.

The latter point - supporting financial analysis - is really important. There is an art to figuring out the level of detail of costs that are necessary for the income statement versus information overload. If you have really good systems (and people) who can extract meaningful data and conclusions from them already, then it's probably OK to have a really basic (i.e., not detailed) income statement and chart of accounts.

However, it is often really hard to predict what might become important to understand in the future, and which costs should be kept separate to really understand how your business is growing or changing. This can seem daunting, which leads to the final and most heartfelt (albeit self-serving) tip....

Hire a bookkeeper or accountant

If you don't have the expertise or time to manage your financial record-keeping, it's essential to hire a bookkeeper or accountant. Full stop.

A bookkeeper or accountant can help you maintain accurate financial records and ensure that you stay compliant with regulations. This is really an investment in your business, as it will free up your time to do what you do best.

Maybe it frees up time to work on a new product line. Or maybe you are able to chase down that new route to market. Or maybe (hopefully!) you get reintroduced to that long-lost friend... the weekend.

Regardless, getting help is the smart thing to do.

In conclusion, sound financial record-keeping is crucial for startup success. At HnO Consulting, we specialize in helping startups manage their finances effectively, so they can focus on growth. Contact us today to learn more about how we can help you master your financial record-keeping and achieve your financial goals.

Disclaimer: This blog post was authored in part by ChatGPT, a language model trained by OpenAI, based on the GPT-3.5 architecture. While the content has been created with the input of ChatGPT, it has been reviewed and edited by a human writer from our team at HnO Consulting to ensure accuracy and quality.

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