Entrepreneurship

Bookkeeping for startups: A comprehensive guide

Bookkeeping for startups: A comprehensive guide
By
REEL UNLIMITED

Updated today —

5 min read
Bookkeeping for startups: A comprehensive guide

Accounting and bookkeeping services will continue to exist alongside the recording of financial transactions, and they are continually evolving. Maintaining careful oversight of business finances is the most important factor in gauging the financial health of a company.

If you are a business owner who has grown from a small business to a hyper-growth startup business and is looking to improve your accounting and bookkeeping services, we will also look at a comprehensive guide to give you an in-depth overview of everything you need to know about bookkeeping for startups in 2024.

What is the position of bookkeeping for startups?

Bookkeeping is the process of recording, organizing, and maintaining important financial records in a company. Whether manually, using a notebook or spreadsheet, or utilizing accounting software, everything goes into the process of recording financial transactions and is the task of bookkeeping. Therefore, bookkeeping lays the foundation for accounting for startups, as it functions as a provider of account reconciliation and bookkeeping at the end of the accounting period.

Every industry, from new businesses to well-established businesses, must keep track of their financial records by incorporating bookkeeping into all aspects of business structure and operations.

However, technology in accounting software has increasingly developed and adhered to modern accounting methods, so startup bookkeeping services must balance the two so that cash flow remains manageable and remains compliant with tax time regulations.

It cannot be denied that the bookkeeping service processes require a lot of energy and time, especially for new startup owners who don't have much time to focus on just one thing. So, we’ll help you explore various types of bookkeeping services, starting from basic explanations of bookkeeping to recommendations for choosing accounting software for your startup business.

Why are bookkeeping services essential for startup success?

Financial planning and managing cash flow

Bookkeeping services do more than only display financial statements; they also provide insight into the company’s financial health. In the process, these show how much cash flow is being generated successfully, including income and expenses, as stated in the cash flow statement. Bookkeeping services can provide insights into the company’s financial position, which enables the development of financial and management plans for the period ahead.

Bookkeeping services are the most important requirement that every business entity must have. Source: Freepik.

Attracting potential investors

People no longer only rely on bank accounts to save, so their bank account balances are decreasing due to administration costs. Consider how you can save money while increasing your net profit margin ratio by investing in business entities. What will you consider before making a decision?

Of course, you will review their financial reports to indicate the business growth presented by their well-maintained bookkeeping. So, linking bookkeeping to all aspects of the business structure is the implementation of strategic business decisions.

Tax return preparation materials

Tax returns and business taxes are assessed by the tax services. When it comes to tax time, the accuracy of a business's tax returns is a priority. All documents related to a business’s financial health, whether it is the first business tax report or future filings, can be presented by bookkeeping services, which can present all tax return preparation and filing processes that are recorded completely and accurately.

The basics of bookkeeping for startups

After knowing the meaning and importance of bookkeeping services are, we must also understand the key elements of bookkeeping services:

Startup accounting methods

Business entities must choose between two accounting methods for reporting the company's financial health: accrual accounting and cash accounting. If they prefer to record revenue and expenses when they are earned or incurred, regardless of when cash is transferred, accrual accounting is appropriate for them. If they want to keep track of transactions only when cash is received or paid out, cash basis accounting is the way to go.

Double-entry system

The double-entry bookkeeping system is widely used by startups and accounting firms. The way it records each transaction with at least two entries to maintain balance already follows US-GAAP (Generally Accepted Accounting Principles). Accounting professionals can utilize accounting software to completely analyze every financial activity ito assess the startups' financial health.

Chart of accounts

The chart of accounts is a structured listing of all the accounts that a company utilizes to record all business transactions. Every account that tracks the activity of assets, liabilities, equity, revenue, and expenses is documented in the general ledger using the coding system to simplify financial reports.

Financial statements

There are financial statements such as income statements, balance sheets, and cash flow statements that provide an overview of a startup's financial health and performance. They show revenue, expenses, assets, and liabilities to help maintain financial transparency.

Bank reconciliation

Reconciling bank statements ensures that the bank account balance reflects the transactions recorded in the startup's accounting system. The purpose is to identify any errors and fraudulent activities to maintain financial transparency by using reliable financial data. So, reconciling bank statements can help with effective accounting for startups and help accounting professionals maintain accurate records.

Who will manage your startup’s financial transactions?

Now you already understand how bookkeeping services work, and now you're wondering who will manage those financial transactions that you have to keep track of in the process. There are actually two main approaches that can handle your bookkeeping: DIY (do it yourself) bookkeeping or outsourcing to professional services. What are they? Let's explore the pros and cons of each approach:

DIY bookkeeping

When you have just formed a new business that still has simple business transactions, DIY bookkeeping is the right accounting method to choose. DIY bookkeeping offers the following advantages:

Save more money:

Rather than spending US$65,000 per year for the services of an accounting professional, you can save money by doing your own bookkeeping.

Understand your business finances better

When you understand your business finances directly, you can see how much cash is coming from and going to.

Adding new skills to financial literacy

DIY bookkeeping can provide you with valuable new knowledge in financial literacy, experience, and skills for better understanding your business.

However, there are some possible disadvantages when you use DIY bookkeeping:

Increased risk in a limited liability company

If you are new to bookkeeping, holding a separate bank account may result in mistakes, confusing the line between personal and business income.

Challenging to manage

As the business grows, DIY bookkeeping may get more challenging, including handling bank statements and reconciling accounts that are most effective if handled by a professional.

Professional bookkeeping services

Perhaps many of you still lack confidence and comfort in doing your own bookkeeping, or you just don’t have the time to devote to your startup accounting software. So, outsourcing to professional bookkeeping services may be a good decision. Here are some of the advantages:

Guaranteed level of accuracy

It is the daily duty of a professional bookkeeper to interpret financial statements and conclude the company's financial position. Professionals' skill in using sophisticated accounting software and methods can produce accurate financial reports, including bank statements.

Time savings

Outsourcing bookkeeping tasks to professionals allows business owners to devote time that is valuable to business growth plans.

Easy to adapt

As your business grows, professional bookkeeping services will continue to adapt to the needs of increasing transaction volumes and evolving accounting requirements.

While hiring professional bookkeeping services may sound simple, it’s also important to consider the potential drawbacks of using professional bookkeeping services.

Cost-consuming

For small businesses or startups that have a limited budget, hiring or paying for professional bookkeeping services can be very expensive.

Miscommunication

Miscommunication between the business owner and the professional bookkeeper can cause a disaster that can harm the accuracy and reliability of financial reports and bank statements.

However, both DIY bookkeeping and using professional bookkeeping services have their own positives and negatives, and it will depend on which approach will work best for your startup. But don't get confused here, because we will keep guiding you on how to choose software in accounting services that suits your needs, along with recommended product options for your business in 2024 and beyond.

Choosing the right bookkeeping software for your startup

Before we show you the many types and models of bookkeeping software, you should consider some aspects while choosing accounting software:

Customization and scalability

Your startup may find satisfaction in accounting software that meets its future needs. Choose a product that will make your small business more flexible, adaptive, well-functioning, and effective in meeting your startup's needs.

User-friendly features

Recent accounting software competes by simplifying financial tasks and incorporating features that reduce the chance of data entry errors. If your startup’s members have no background in accounting, use user-friendly accounting software to make it easy for them to grasp and operate.

Integrations

Choose software designed to be compatible with other startup bookkeeping services to connect data flow between systems, including customer relationship management (CRM) software, payroll, and inventory management, to maintain consistency across all platforms.

Automation features

To keep the data integrated, select accounting software that automates repetitive tasks to save time, reduce the possibility of errors, improve accuracy, and speed up processes like invoicing, expense tracking, and financial reporting.

Data security

Ensure that the accounting software offers robust security measures to protect your sensitive financial information.

All of the ways mentioned above interpret bookkeeping as a tool for saving time and improving efficiency. However, let us discuss some additional tips to help you keep your bookkeeping process streamlined.

Tips for simplifying bookkeeping processes in a startup environment

If you're a startup founder wanting to keep startup accounting simple but effective, here are some tips to follow:

Set up the document system

Every organization needs to systemize to organize all of the financial documents like receipts, invoices, and bank statements and digitize them to help maintain a paperless environment and facilitate audits.

Keep track of everything

Maintain accuracy by keeping track of all financial papers and accounts, including your business bank account, to make it easier during reconciliation.

Stick to deadlines

Time-bound company obligations such as tax and legal compliance should be on your calendar to avoid penalties.

Besides knowing the tips for simplifying your startup’s bookkeeping process, it would be better for you to also know the common bookkeeping mistakes in 2024 that might occur and how to avoid them.

Common bookkeeping mistakes to avoid in 2024

Here are some potential common bookkeeping mistakes that are likely to occur in 2024, as well as advice for avoiding them.

Blurred boundaries between personal and business expenses

In some small businesses, it is challenging to manage expenses and sometimes gets blurred between personal accounts and the startup’s bank accounts. Do separate it to maintain accurate financial records.

Misclassification of expenses

There is a lot of categorization of expenses in financial reports, and when distorted, it leads to difficulties. Establish clear guidelines for categorizing and periodically review them to adjust them.

Undirected to reconcile accounts

Accounts like bank accounts, credit cards, and financial statements have to be developed by schedule to reconcile, whether it is monthly or quarterly, to have accurate financial reporting.

Forgetting to backup data

There is a possibility that financial data will be lost due to hardware or software failure, so regularly backing up it all and keeping it easily accessible is necessary in order to maintain documentation for audit defense.

Overlooked to track petty cash

Recording all petty cash is the most important, but sometimes ignored, duty. Think about creating a detailed schedule of action when you spend time focusing on cash inflows and outflows.

You may have known how important and useful bookkeeping services are for any business entity. It’s finally here: the best DIY bookkeeping tools in 2024 as accounting systems to consider.

Top 5 DIY bookkeeping tools for 2024

1. FreshBooks

FreshBooks is well-known as one of the best-designed accounting system tools for small business owners and freelancers, offering full functionality in cost-effective packages. It includes double-entry accounting tools that help startup entrepreneurs automate all time-consuming operations for managing cash flow. FreshBooks's key features include online invoicing, time tracking, project management, payments, tax compliance, late payment costs, centralized discussions, and accounting reports. FreshBooks' invoicing function lets small businesses customize invoice designs, language, and currency billing to fit their brand. FreshBooks also provides reminders to automatically warn the client if they are late to pay for your services.

In their tracking services, including time tracking, expense tracking, project management, and reporting, FreshBooks deliberately designed the platform's payment processing features to be human-friendly, so your clients can easily pay directly from the invoice.

Freshbook prices

FreshBooks's pricing from their website.

2. QuickBooks Online

QuickBooks Online is a startup accounting software that provides full-service bookkeeping. Developed by Intuit, QuickBooks Online is a cloud-based accounting software that offers freelancers or small businesses the ability to export documents that are accessible to file taxes when tax season rolls around, such as accounting services such as tracking sales, income, and expenses. They also offer automatic tax calculations and data synchronization, which clearly reduces time.

QuickBooks Online is still one of the most popular accounting systems relied on by startups for its ‘generous’ prices. For internationally based startups, they offer plans that include free setup and a free trial period, where international startups pay just $1 for the first three months to track their expenses. 

They are also reasonably priced, with monthly plans starting at $17 and including all functionality such as invoice creation and management, bill management, and payment management. For US businesses, they are currently offering a 50% discount on every plan package.

QuickBooks Online Price

QuickBooks Online pricing from their website (for international startups).
QuickBooks Online pricing from their website (for US-based startups).

3. Xero

Xero is well-known as an accounting software platform that is user-friendly and fits perfectly with the startup environment, even in international operations. Its core features include bill payment, financial reporting, expense claims, bank reconciliation, invoicing, purchase orders, smart list and contact management, project tracking, fixed asset management, and more.

Xero allows business managers and owners to keep track of their performance and projects (from inventory management to sales quotes) via a centralized repository. They also provide self-service learning tools, which can reduce future training expenses; it's no surprise that Xero has a large active user base due to its ease of use.

Xero prices

Xero's pricing from their website.

4. Wave

Wave is a good match for startups on a tight budget because they provide a free plan for accounting and invoicing, receipt scanning, and bank connections. Wave focuses on accounting tools that help small businesses manage their finances using an integrated financial management system that is easy to use. So, it's ideal for small businesses that are just getting started and want to experiment with accounting software.

They also have VIP services from professionals to help small business members set up paid coaching where they can teach materials and answer questions. Wave can connect all its products through a single interface, including payroll, invoicing, and payments. It provides online training materials for adding receipts, bills, and other transactions.

Wave prices

Wave’s pricing from their website.

5. Puzzle.io

Puzzle.io is a comprehensive bookkeeping tool designed for startup founders and independent accountants as a DIY bookkeeping solution.

Puzzle.io for startup founders

Puzzle.io helps startup founders make data-driven decisions by providing them with real-time cash flow, burn rates, and runway forecasts for their investments. Inside, the Puzzle.io setup provides automation and AI to help bookkeepers be more efficient and accurate, so there are no missed payments, bank accounts, or payroll transactions when utilizing Puzzle.io. They exist as ready-to-go accounting software that can give investors progress updates on a regular basis.

Puzzle.io lets startup owners simply share what their company has learned, what they plan to do next, and financial updates that involve how much money is left over from the month's P&L and balance sheet.

Puzzle.io for accountants

Puzzle.io's first mission for accountants is to save time and help them get things done more effectively by delivering automated revenue recognition tools and integrating Stripe. This may be accountants' paradise because complicated calculations like MRR (monthly recurring revenue), ARR (annual recurring revenue), accrued revenue, deferred revenue, and so on are easily accessible with a single click, saving them time updating spreadsheets. Accountants can create revenue recognition schedules in seconds thanks to Puzzle.io's Stripe feature.

Their automation can also help the accountants preserve accrual-basis revenue when they need compliant financial records that must comply with Generally Accepted Accounting Principles (GAAP). Impressive and credible revenue information offered by Puzzle.io can impress investors and stakeholders.

Puzzle.io prices

Puzzle.io's pricing from their website.

Each of these tools has its own strengths and pricing structures, so you should consider which one best fits your startup's objectives and budget.

5 Best professional bookkeeping services for startups in 2024

If you've decided to use professional bookkeeping services, these are the best providers for startups to consider in 2024: Bench.

1. Bench

Within the outsourcing industry, Bench is well known as a provider of financial and accounting outsourcing for small businesses and new entrepreneurs. The standout feature they offer is their intuitive and interactive platform interface, which gives small businesses a clear visual picture of their financial condition. Bench's team of bookkeepers, who are experts in their fields, will be ready to work behind the scenes and ensure accurate financial records, which is the right solution for new businesses.

Bench prices

Bench's pricing from their website.

2. Pilot

Pilot, as one of the largest accounting firms in the USA, has been trusted by many fast-growing startup companies. They have competent experts in finance that can help startups with specialized tax credits. Their monthly fees start at $499 and include full-service bookkeeping, dedicated finance experts assigned to your company, financial reporting, and burn rate calculations.

Pilot prices

Pilot's pricing from their website.

3. Kruze Consulting

Kruze Consulting specializes in seed businesses and funded ventures. Their mission is to assist startup companies that have acquired financing from professional investors and require an advanced level of bookkeeping and accounting to report the financials that will be presented. That’s why Kruze established an integrated tax preparation, finance, and accounting team that can help business owners be prepared for any conditions.

Kruze Consulting prices

Kruze Consulting's pricing from their website.

4. 1800Accountant

1800Accountant is a virtual team of bookkeepers, tax and financial advisors, payroll professionals, and accountants that are experts in all of the states and industries in the United States. The platform is available as mobile apps, making it ideal for both remote and on-site startups. 

1800Accountant not only provides the expertise to ensure that your financials are up-to-date and accurate, but they also help small businesses with everything from tax guidance and preparation to payroll processing. 1-800Accountants can also help you get an early start on setting up operations to maximize tax savings.

1800Accountant prices

1800Accountant's pricing from their website.

5. Fondo

Fondo is an accounting software company that offers three primary services: bookkeeping, tax credits, and TaxPass. Bookkeeping services focus on generating profit and loss statements, balance sheets, and cash flow statements, which are one of the main financial management tools for companies.

Fondo will monitor and support your company in avoiding penalties by providing TaxPass, an annual subscription that covers corporate filings for Delaware Franchise Tax, State Corporate Income Tax, and Federal Corporate Income Tax deadlines. Fondo has been successful in offering tax credits of up to $500,000 to startups whose employees are based in the United States.

Fondo’s prices will adjust to each startup's expenses. Bookkeeping costs $599 per month but is currently discounted to $499 per month. TaxPass is currently offering an attractive discount, dropping from $3,250 to $1,450 per year. 

Meanwhile, for international startup companies, Fondo provides discounts ranging from $7,150 to $5,150 in exchange for easy access to information on foreign subsidiaries, foreign owners, and foreign bank accounts. Fondo provides all of its services through the expertise of dedicated accountants and tax professionals.

Fondo prices

Fondo’s pricing on bookkeeping based on their website.
Fondo’s pricing on TaxPass based on their website.

Each of these professional accounting services has its own set of features, price models, and expertise, so it’s time for you to carefully select which one best meets your startup's needs. If your startup requires greater accuracy and self-control, you can combine DIY bookkeeping with professional services.

Bookkeeping is a scripture for our startup needs

Never have successful companies if they don’t utilize bookkeeping. While the offering of bookkeeping keeps on varying, we hope from this guide you can determine which bookkeeping service suits your startup’s needs, whether it is done by DIY bookkeeping or seeking professional bookkeeping services.

Which one do we recommend?

What are you waiting for to choose between DIY and professional bookkeeping services? REEL UNLIMITED has found success using Puzzle.io's user-friendly services for new businesses, effectively managing our finances to make accurate decisions. When we need advice from a dedicated professional accountant, REEL UNLIMITED has entrusted Fondo to provide solutions that meet our needs. Regardless, we achieve better results by combining expert help with software.

REEL UNLIMITED: The solution to raise our startup's awareness

In the highly competitive year 2024, just bringing bookkeeping to your startup is sufficient for internal purposes. As a result, your startup must also introduce its prominent characteristics so that users can recognize it for its unique design. REEL UNLIMITED, which provides video services as well as website design, motion, and video graphics production, can undoubtedly help your startup run and look its best. With a creative design team and a customizable plan, you can put together a website that reflects your brand. Of course, all of this is affordable, as REEL UNLIMITED promotes low-cost, high-quality design solutions. Let's create your startup freely by getting an unlimited design subscription now.

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