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Now that we are halfway into 2021, it is time to think about how you can further improve your startup’s operations to guarantee greater success in the latter half of the year. During this process, you will want to ensure that your cybersecurity measures are up to date, properly organize all of your old customer orders and recycle any documents you no longer need, but what about your startup’s finances? Take the time now to analyze and clean up your books to avoid any potential financial issues down the road.
To manage and grow a successful startup, it is vital to have a crystal-clear knowledge of its fiscal health. Examining your startup’s monthly costs, profits, pending invoices and other monetary factors will help you discover unnecessary expenses you can eradicate and other ways to improve your bottom line. Doing this will help you maintain long-term profitability and consistent company growth.
Here are just a few ways to organize and keep your startup’s finances in check:
Complete your journal entries
In order to have a clearer picture of your startup’s finances, all of its transactions must be properly recorded each day. Your accountant should document company expenditures, customer sales, payments to employees and other transactions as journal entries in their books.
As the company leader, it is your responsibility to meet with your accountant to assess and record any unresolved accrual/deferral journal entries. Documenting these backlogged journal entries will give you a much more up-to-date, clear picture of your company’s financial situation. This, in turn, will help you make business decisions that will positively impact your startup’s bottom line.
Record and organize your receipts
To keep your startup’s financial health in check, you must document and organize the receipts for all company expenses. Do you purchase office supplies or pay for employees to take online courses to further their education? These are just a few examples of expenses that must be recorded.
This will help you keep everything in order for the next tax season. Also, if the IRS ever audits your business, having a complete and organized record of your receipts will help ensure a smoother, less stressful process.
Review your profit and loss and balance sheet statements
As a business owner, how many times have you been distracted by an incoming email or call that caused you to make a mistake on a project you were working on? Or how many times have you made mistakes when you were rushing to complete tasks before their deadline?
These common scenarios demonstrate why you should spend time assessing your startup’s profit and loss and balance sheet statements to confirm that every single entry is accurately recorded. We’re all human, and while recording expenses and sales, we can sometimes make mistakes. Unfortunately, oversights regarding your financials can lead to flawed financial statements (and a ton of stress when you try to correct everything during the next tax season).
Therefore, make sure to go through all of the records in your profit and loss and balance sheet statements to ensure that all of the transactions are documented correctly. If you have an in-house accountant or outsource your bookkeeping, an extra set of hands can help in this regard.
Perform monthly bank reconciliations
It’s pertinent to schedule a time to execute a bank reconciliation every month. In doing so, you will have greater peace of mind knowing that all of your company’s transactions are accounted for (and that your bank balances are all in check). During one of your bank reconciliations, you may even discover that a client never paid an invoice or that you were overcharged for a monthly software subscription. This step will help you maximize your startup’s profits!
Compare your budget to your actual expenses
Gauge how your budget compares to your actual expenses and remedy any major variances. In doing so, you may discover you can cancel subscriptions to software your business no longer needs or discover other unnecessary costs that negatively impact your company’s bottom line. By identifying the discrepancies between your business’ budget and actual expenses, you will be better equipped to take corrective action if problems arise later on. You will also make better financial decisions overall.
Close your financials each month
If you don’t close your startup’s monthly financials up to the most recent month, you run the risk of having a completely inaccurate picture of your company’s overall fiscal health. Thus, take the time to organize and close your firm’s financials each month.
Keeping the most up-to-date financial records possible will help you ensure your business always stays within its budget. You will also be better able to make critical decisions that will ensure the long-term prosperity of your startup’s financials.
Key takeaways on startup finances
All entrepreneurs need to have accurate accounting books and a crystal-clear understanding of their startup’s fiscal health in order to safeguard against any potential problems. If you’re not financially savvy and on a bootstrapped budget, consider working with a freelance bookkeeper to help you.
Take the time to review your startup’s finances by completing journal entries and recording and organizing all of the receipts for any business expenditures. You must also examine your profit and loss and balance sheet statements, execute monthly bank reconciliations and compare your budget to your actual expenses. Finally, close your startup’s financials up to the most recent month.
All of these steps will help you make decisions that will catapult your startup’s financials as well as your business overall into greater levels of success in the long run.
Originally published June, 16, 2021.