Understanding the Crucial Role of Financial Accounting for Startups

Startups have a lot to deal with. Starting from the marketing, logistics and finance to customer service, operations and even coordination between all. Setting up these processes is tough, time-consuming and takes a LOT of patience.  One of the most important activities that are highly crucial for startups is financial accounting. As a non-technical founder, you may be overwhelmed under the workload of accounting. However, because it is so crucial you can’t afford to overlook the financial accounting of your firm.

What Is Financial Accounting?

Financial accounting is an accounting vertical that deals with recording, summarizing and reporting a number of transactions that a business is conducting over a period of time. A summary of these transactions helps in the preparation of financial statements like balance sheets, profit and loss accounts etc. 

A financial accountant has the above-mentioned duty and is responsible for doing much much more. They differ from a general accountant and management accountant in terms of work and scope. 

Here Are A Few Reasons Why Financial Accounting Is Important For Your Startup

  1. It tells you where your money is going

It shows you the breakup of expenditure. It shows where you are investing or spending by quantifying and classifying your transactions. It helps you to understand if your spending and investments are really worth it. When your transactions are classified correctly, You can find opportunities to save money and redirect that money to more avenues which may be more profitable and effective.

2. Know your receivables and payables

Book-keeping records transactions in real-time. Thus, It shows you, in real-time which customers or clients are yet to pay and to whom you need to pay. This helps in projecting your working capital needs correctly which in turn helps in budgeting and forecasting. 

3. Gives an estimate of costs

As a business, it is necessary to correctly understand the cost of your product or services. At times, you may misunderstand costs and this, in turn, may wrongly determine the price at what you need to sell. If properly done, it can help you understand costs accurately which will, in turn, ensure that your unit economics or Profit per product sold are correctly calculated.  

4. Preparation of financial statements 

Book-keeping and accounting help in timely creation of financial statements like balance sheets, profit and loss statements etc. Hence, if you ever need to present your financial statements to external entities like Investors, Banks etc. you will always have it handy. 

5. Takes care of tax planning 

Every business is required to pay and file Income Tax and GST on due dates. For these, you need accurate details on profits, expenses, sales etc. Financial accounting and book-keeping will help you keep a track of those details and will ensure you have done all compliance in time. 

6. Helps in obtaining loans

When you have concrete statements on your transactions and profits, it becomes easier for startups to apply for loans from banks and financial institutions. They can rely on your financial statements to assure repayment. 

7. Assists in decision-making 

It helps you maintain relevant data about your transactions like income, cost, expenses, investments etc. When you have this data, it becomes easier to see gaps and opportunities in your current cash flow. Hence, you can make decisions for marketing, advertising, operations and other processes based on facts and numbers proper accounting may throw up. 

Final Thoughts 

Financial accounting is as important as management accounting for a startup. It can improve your overall business and can assist you in making decisions for the growth of your organisation. It helps you stay on track of your projections and goals.

What’s more? You have concrete data to back all your decisions. None of your decisions is haphazard or rushed when they are backed by data and insights. 

If you are a startup that’s looking to incorporate this accounting without the hassle of hiring an accountant, then it’s best to outsource this activity to industry experts. At Business Guru, we can handle all your accounting needs and provide timely reports for your business. We have a team of trained professionals comprising of CAs and MBAs who can help you breeze through it with ease. 

Get in touch with us for any queries.