Keeping Your Numbers in Line: The Not-So-Sexy Secret to Startup Success
On any startup journey, there is plenty of fun stuff: dreaming up a product or service, deciding on a brand name that's not already taken by a defunct blog from 2007, designing a logo that doesn’t look like it was made in Paint and snagging that domain name along with social media handles. Maybe you’ve even started selling, or maybe you’re still in the 'Wouldn’t it be cool if…’ phase.
Now, onto everyone's favourite topic: accounting. Accounting isn't as scary as everyone makes it out to be. It’s not just about counting beans or whatever; it’s a critical tool for making less-than-terrible business decisions.
So, while you might prefer doing well, anything - over reconciling bank statements, ignoring your accounting is like ignoring a check engine light. It doesn’t end well.
Getting your accounts right from the get-go isn't just good practice—it's your startup's lifeline.
You have options
Now, before you decide to live off the grid to avoid it altogether, let's talk options. You've got a few:
DIY Accounting: "How hard can it be?" Depending on the size of your business and your willingness to learn, this is for the adventurers who see every challenge as an opportunity. Armed with resources and a can-do attitude, you might find that managing your own books not only demystifies the financial aspects of your business but also grants you unparalleled control and insight. It's empowering.
Software Solutions: This is where tools like Xero come into play, acting as the middle ground for those who value their sanity. It’s for the entrepreneur who acknowledges the importance of accounting but loves it as much as a trip to the dentist. I love Xero and I tell you the reasons why, here.
Hiring a Professional: The equivalent of calling in a superhero when you're in over your head. It's the priciest option but consider it paying for peace of mind.
Depending on your business structure and how much you value your free time (and mental health), one of these paths will likely resonate with you. For me, I went with Xero, not out of love for accounting, but because it worked best for me to stay on top of my finances without actually having to become an accountant.
Why Accounting Isn’t Just a Necessary Evil
Imagine you’re on a road trip. Accounting is your map, compass, and GPS all rolled into one. Without it, you’re just driving blind, hoping you don’t run out of petrol (money) or crash into something unexpected (taxes, anyone?).
Here’s the lowdown on why keeping your books tidy is the most rewarding thing you can do:
Cash Flow Clarity: Knowing where your money's at is kind of important. It’s the difference between affording that new marketing campaign or having to explain to your partner why supernoodles are a perfectly acceptable meal—three times a day.
Tax Time, Less Terrifying: Come tax season, you'll either pat yourself on the back or curse past you for your record-keeping habits. From experience, the best way to keep on things is little and often. Set a day every week or two, and stay up to date.
Investor Attraction: Want to woo investors? Flash them your impeccably kept books. It’s like financial peacocking. We’ve all seen Dragons Den, it doesn’t matter how cool your product is - it’s the money that talks. It's not just about what your turnover is; it's about how deeply you understand those figures and how effectively you present them. In the world of startups, clarity and savvy in financial matters speak volumes, turning potential interest into solid investment.
Getting Your Accounts Right: No MBA Required
I’m not saying you need to become a accountant overnight. But a little effort goes a long way. Here are the cliff notes to kick things off on the right foot:
Company structure: Before diving into the deep end, take a moment to consider the skeleton of your business—its structure. Whether you're a sole proprietor, running a partnership, or steering a limited company, each has its own fiscal footprint and tax implications. It’s like choosing between a bicycle, a car, or a spaceship for your business journey. The structure you pick dictates everything from your tax filings to how much of your personal assets are at risk if things go south. I talk more about this, here.
Bookkeeping Basics: Invest in some accounting software. Yes, it costs money, but so does messing up your taxes. Plus, many of these tools can automate the soul-draining parts of accounting so you can focus on more fun and important things.
Understand Your Financial Statements: There are three biggies here—the balance sheet, income statement, and cash flow statement. They’re like the Holy Trinity of understanding your business's financial health.
Keep Business and Pleasure Separate: Open a business bank account yesterday. Mixing personal and business finances is like storing dynamite and matches in the same drawer. I personally use Monzo Business, you can store receipts and connect accounting tools so everything's in one place.
Plan for Taxes: Set aside a portion of each transaction for taxes. Think of it as your future self thanking you for not spending that extra cash on something frivolous, like an office hoverboard. With banks like Monzo, you can choose a percentage of your income to automatically set aside for tax, every time you’re paid.
Conclusion: Embrace the Numbers
Look, I get it. Accounting can be dull. However, the point of the Chronicles is for me to share things I wish I’d known starting out. The biggest lesson? Accounting is the bedrock of your business's success. Treat it with respect. Embrace the numbers, keep your finances tight, and who knows? Maybe you’ll even start to like it. Or at least, not dread it. Here’s to making accounting the silent hero of your startup story.
