The Founder’s Guide To Startup Accounting

Startup Accounting

As a startup business founder, you must figure out how and when to stay on top of your accounting and bookkeeping needs. These may not be as necessary as finding a technical co-founder or understanding cash flows, but they are foundational elements for business health.

Without startup accounting, you cannot figure out your cash flows or make a budget. Furthermore, you need an accountant to choose the business structure and proper accounting methods, keep your books updated and stay prepared for taxes.

This comprehensive guide covers everything about startup accounting.

Do I need a bookkeeper or accountant?

It is expected that business founders must know everything from setting up a business, running it and staying on top of accounting. However, it is not possible for every excellent entrepreneur to be an expert in startup accounting, and they need professional help.

Before you understand whether to hire an accountant or a bookkeeper, you must know the difference between accounting and bookkeeping.

Bookkeeping is the financial compiling system of a business responsible for keeping your financial records in place. Accounting involves analysing and recording those transactional data to give clear insights into your financial performance and help you make sound business decisions.

You may merge the responsibilities of bookkeeper and accountant according to your company’s needs. However, you can get a bookkeeper for basic accounting tasks in the initial years.

startup accounting

What are the common accounting needs of a startup?

Accounting needs vary depending on business size and type. However, there are a few common needs that every business must fulfil to survive in the market. Some of these are listed below.

Selecting business structure

Whenever you start a business, you must decide on the business structure. In the UK, you have three options, a limited company, sole trader, or partnerships. Each business structure has its individual needs. For instance, limited companies must register with the Companies House while starting a business. It is not needed by the other two.

Selecting Startup accounting method

The UK’s most commonly used accounting methods are Cash-based and Accrual-based accounting. You need to select either of these before recording financial transactions.

?     In Cash-based accounting, a transaction is recorded for revenue when the amount is received and expenses when cash is paid.

?     In accrual-based accounting, a transaction is recorded when revenue is generated and expenses incurred instead of when money exchanges hands.

Recording financial transactions

Businesses must keep track of their financial transactions to understand cash inflows and outflows, business performance, and prepare budget and tax returns. Your task is to collect, record, and update transactional data to either software or spreadsheets.

Analysing financial data and preparing financial statements

You need to analyse the transaction details on your database to create financial statements. There are three essential financial statements that every business must have.

?     Cash-flow statement – It depicts your cash-ins and outs

?     Profit and loss statement – It gives a clear image of whether your business is making a profit or a loss

?     Balance sheet – It shows all company-owned assets and debts.

Prepare tax returns

Employees getting payments via PAYE don’t worry about tax return filing, but self-employed people need to worry! You must keep all your bills and receipts in hand while preparing tax returns and use the software to remain compliant with the HMRC regulations. Any mistake in the form can call HMRC for audits or tax investigations.

Pay taxes on time

Tax is the most complicated subject for business owners if they are unfamiliar with preparing tax returns and calculating tax amounts. HMRC leads down several tax concessions you must understand to pay a lower tax amount than you pay now. An accountant can help you check the eligibility for tax-free allowances in the UK.

However, you must pay the correct tax on time. Keep track of your tax and VAT (if registered or voluntarily registered) deadlines to avoid paying fines.

Prepare budgets

Every business, especially startups, must have a budget to keep track of their expenses and not let their business make a loss. Professionals collect your income and expenditure data from financial statements and prepare a budget.


Auditing is an independent examination of an organization’s financial statements and records to ensure that they are accurate, complete and comply with accounting standards and regulations. Audits are typically conducted by an independent auditor, who can be a certified public accountant (CPA) or another qualified professional.

The purpose of an audit is to provide assurance to the stakeholders, such as shareholders, investors, and creditors, that the financial statements are reliable and accurately reflect the financial condition of the organization. Audits also help detect fraud and errors, and identify areas for improvement in the organization’s financial reporting and internal controls.

It is important for the startup to have an independent audit of their financial statements, especially if the company is going to be looking for funding or investment. It also helps to maintain transparency and credibility of the company in front of its shareholders, investors, and customers.

Make sound financial decisions.

Making sound decisions from the initial stage of business is vital in the long run. When you clearly understand your opportunities and loopholes, you can make necessary improvements to reach your targets. An accountant can always help you in making critical financial decisions.

Also Read: Why Payment Gateway is Helpful For Startup Business?


Every business has unique accounting requirements that you, as a founder, must fulfil to gain success. It is not mandatory to hire accountants in business. If you have a basic understanding and HMRC-complaint accounting software, you are ready to do your startup accounting.

© Ruchi Verma

Disclaimer:This post is written as an informational part, please read all guidelines carefully before investing in financial transactions.

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Ruchi Verma

Certified parenting teen practitioner, multiple Award winner, mother of two active kids believes in sharing the right source of information to readers which could help them in every possible way!!

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