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8 Reasons Why Bookkeeping is Important for Startup Businesses

Posted by: Eye on Books on 7 Apr 2021 | 4 Comments
Startups are exciting times, but proper bookkeeping will provide a solid foundation for future growth & success

Related blog categories: Bookkeeping, Startup, How-To

As the owner of a startup, your success hinges in great part on your ability to properly manage your finances. Failure to start off on the right foot with proper bookkeeping procedures can spell disaster for small businesses that are struggling to stay afloat in a competitive marketplace.

Below are eight reasons why bookkeeping is important for startup businesses. 

1) Improve cash flow

"Only half of new small businesses survive beyond their fifth anniversary...Short of going belly up, many businesses go through periods when they become short on cash, leaving business owners in the unfortunate position of being unable to make payroll for a given period. Instances such as this occur for a variety of reasons including low seasons in certain industries, absent receivables, and a down economy."

- Lauren Cannon, Inc.com 

Cash flow challenges are among the greatest woes for business owners during the early years of a startup. While there are sometimes cash flow issues that are impossible to control, bookkeeping allows you to plan your key expenditures while isolating cash blow barriers such as slow-paying customers. 


2) Identify spending patterns

Bookkeeping provides a solid foundation for startup owners who wish to track their spending habits. Here are a few things that would be difficult for startup owners to accomplish without proper bookkeeping:

  • Identify seasonal fluctuations in spending
  • Categorise your expenditures
  • Identify opportunities to reduce wasteful spending


3) Increase forecasting capabilities

Forecasting sales is always a challenge - especially for startups that lack any substantial sales history. Bookkeeping provides you with a history of your sales that will prove to be useful as you attempt to prepare your budget for next year. 


4) Provide accurate financial data to investors

"The importance of maintaining accurate accounts should never be underestimated. Current and accurate financial information is critical for tax reporting purposes, raising capital from outside investors, and updating investors about your company's progress." 

- KPMG Startup Success Guide

If you are one of the many startup owners who have funded your business with the help of investors, you need to be prepared to provide financial updates to your investors on a regular basis. Producing stakeholder progress reports is much easier if you have been vigilant about bookkeeping. 


5) Keep you within your budget

While many startup owners possess the passion and drive to succeed, they are not able to remain within their budgets. Without an effective bookkeeping system, it can be easy for a startup owner to overspend on non-essential items. A user-friendly software platform makes it simpler to stick to your budget because you can receive alerts when you approach your spending threshold. 

Startup trends small business bookkeepingArticle: 4 Biggest Trends we've seen in startups this year

6) Track customers who are delinquent payors

"Releasing its latest report, The Invoice Market said that on average, small to medium sized businesses are perpetually owed $44,812 each, with debtor excuses for non-payment ranging from 'lost in the system' to 'being reviewed internally' to being 'in dispute' or being 'processed off-shore'."

- BRI Ferrier January News Digest

Small business owners in Australia are constantly contending with customers who fail to pay for products and services. A bookkeeping service can help you identify repeat offenders so that you can collect payments faster and keep your startup afloat. 


7) Quickly identify top customers

Meticulous bookkeeping makes it easy for startup owners to quickly isolate top customers and repeat purchasers. With 20% of customers accounting for 80% of sales, startup owners can hardly afford not to keep track of their top spenders and repeat customers. With the help of a trusted bookkeeping service, you can stratify your customers according to sales volume and frequency so that you know which customers are truly driving your business.


8) Establish good habits from Day 1

According to the Small Business Administration (SBA), the top mistake made by entrepreneurs is believing they can do everything on their own. You can avoid this mistake by seeking the support of a trained bookkeeping professional before you launch your business:

"Each startup situation is unique but generally, most startups can begin with a bookkeeper. A bookkeeper's services make sense for uncomplicated start-ups which don't plan on building an empire. A bookkeeper can get you going with a good record keeping system, handle your financial transactions, and produce your financial statements."

- Darrell Zahorsky, The Small Business


What is the best path to accurate bookkeeping?

As outlined above, there are many reasons why startup owners should make bookkeeping a top priority. In addition to providing a way to quickly identify top customers and delinquent accounts, bookkeeping enables startup owners to provide accurate financial data to investors and improve their forecasting capabilities.

The best way to guarantee accurate bookkeeping is to enlist the guidance of a full-service bookkeeping company. An industry professional can ensure that your accounts have been correctly reconciled. Additionally, you can enjoy the peace of mind that comes along with knowing that you are providing sound financial data to stakeholders. We invite you to contact us at Eyeonbooks to find out why we are Australia's most trusted provider of bookkeeping services. We look forward to hearing from you!


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