Accounting for startups: how to get it right

As a startup, it’s essential to organise your accounting from the beginning. Accounting is the necessary recording of finances for your business. In fact, companies must keep their financial records for about six years. But good accounting also helps you make better business decisions. 

With strong accounting tactics, you can track your company’s progress, understand your performance, and keep accurate reports for taxes. But if you’re not a natural with numbers, accounting might seem intimidating. Luckily, simple habits can set you up for success. 

This guide will cover accounting for startups, including: 

• The business current account 
• Record keeping 
• Financial statements 
• Accounts receivable vs accounts payable 
• Invoicing 
• Tax
• How Countingup can help

Opening a business current account is the first step to good accounting for startups. This account is just like a regular bank account, except it’s specifically for your startup. Separating your business finances from your personal ones will make it easier to track your transactions and keep clear records. 

The right business current account will offer more than just a place to hold your finances. It should also offer tools to manage that money as the Countingup app does. Countingup is a business current account with built-in accounting software that simplifies your accounting from the start.  

For accounting, you need organised and transparent records of everything you spend and earn for your business, which you can keep in your general ledger. The general ledger is the primary source for your bookkeeping, and it keeps all of your startup’s financial information.  

The general ledger includes: 

• Profits: The total earnings that remain from your revenue after subtracting all losses and expenses.
• Losses: Money you spend on your business that hasn’t created revenue, such as selling assets for less than their value.
• Revenue: The total amount of money you bring into your business from the sales of goods and services. 
• Expenses: The amount of money you spend on your business to generate revenue, such as marketing expenses or shop rent.
• Assets:  Something you own for your business that you can convert into cash value, such as inventory, or equipment.
• Liabilities: Things you owe other people, such as a loan or accounts payable.

On top of your ledger, you need to keep proof of your business transactions, such as receipts and invoices, to show what you spend and earn. To avoid messy piles of paper, you’ll want to digitise your records to store everything safely on a computer. By doing this, your records will be easier to manage, and you’ll have a backup if your physical copies are lost or damaged.   

With Countingup, you can organise, automate, and easily record transactions with features like automatic expense categorisation and the receipt capture tool. The expense categorisation tool uses HMRC approved categories to help you find tax-deductible expenses. Then, the receipt capture tool reminds you to take a picture of your receipt as soon as you purchase, so you don’t have to keep a messy pile of receipts. 

Bookkeeping can then help you create important financial statements, which are necessary for understanding and analysing your performance. Statements can show when you need to adjust your budget or can set money aside for growth. On top of this, they’re crucial for tax reporting, so they must be updated and accurate. 

There are three main statements for your startup: 

• Profit and loss statement (P&L): Also known as the income statement, this P&L statement outlines everything you earn and spend to determine your income or profit. 
• Balance sheet: This sheet outlines your startup’s assets against your liabilities to assess your business’s financial health and value. 
• Cash flow statement: This statement outlines the amount of cash that flows in and out of your business over a given time. 

The Countingup app can help you compile these statements and understand your business performance with ongoing cash flow insights. With this feature, you can confidently keep on top of your business finances wherever you are.

The next thing to consider in accounting for startups is the accounts receivable and accounts payable. These documents help you track how much people owe your business and how much you owe other people. 

Accounts receivable, for example, would outline work that clients have not yet paid for. Meanwhile, accounts payable might list loans you took out or inventory costs you owe. 

When considering earnings, invoicing is crucial. An invoice is a document that requests payment from a client for goods or services you completed. Invoicing is a critical step in turning your earnings into cash. 

Clients typically have 30-90 days to pay an invoice. So, it’s important to have a system for making and tracking invoices to ensure clients remember to pay you. You may also need to remind clients of your payment terms to maintain your business’s cash flow. 

Luckily, Countingup makes it easy to send and manage invoices. With the app, you can create, send, and duplicate unlimited invoices on the go. It’ll even send notifications when you receive an invoice and automatically match it to a payment so you can track your earnings. 

Taxes are another necessary aspect of accounting for startups. As a startup, you’ll likely need to pay income, dividends, and national insurance tax. If you maintain clear and organised records, you can properly report your income for taxes and deduct the proper expenses. 

Plus, if you expect to earn over £85,000 annually, you need to register for VAT and comply with Making Tax Digital (MTD) reporting. Eventually, the government will require MTD for most businesses, so you may want to look into MTD-compliant tools to set yourself up for success.  

The Countingup app can help you simplify your taxes because it generates tax estimates to avoid surprises. You can also use this information to plan ahead by setting the necessary expenses aside. Countingup is even MTD-compliant and it automatically calculates VAT on your transactions. This feature helps you prepare for the future of taxes. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

To get accounting right from the start, you’ll need the appropriate accounting software. Managing your own finances can be stressful and time-consuming, so you’ll need something that can help digitise and automate your accounting. That’s why thousands of startups use the Countingup app to make their financial admin easier. 

Rated ‘Excellent’ on Trustpilot, Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. It can streamline your process, support accurate record-keeping, and save you time. No wonder customers call it an ‘Amazing app,’ with an ‘Excellent approach.’

You can sign up for Countingup in under five minutes and try it free for three months to experience how it helps you run your business. 

Find out more here.