Punch Financial developed the following top accounting practices based on their experience with some of the Valley's best startups after providing outsourced bookkeeping and CFO services to hundreds of small firms.
Create A Detailed Chart of Accounts Ensure that your chart of accounts is detailed to the proper level to 'tell your story: Create sub-accounts to main G/L accounts so the reader of your financials can figure out what is happening.
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Make a Gross Margin Calculation Properly
Understand your products/services' true 'gross margin.'
To achieve a healthy gross margin, make sure your accountants accurately identify expenses in Cost of Goods Sold (COGS) ( Greater than 60 percent )
Use GAAP rather than cash basis.
Your accounting company can use one of these two approaches to prepare your financial statements. You must apply GAAP (Generally Accepted Accounting Principles) if you want to raise capital, sell your firm, or go public. Make a point of it!
Create budgets and projections
Budgets and projections are not the same thing.
Your predictions are mostly focused on your revenue targets and are utilized to raise finance. Budgets are the blueprints for how you'll spend your money and manage your cash burn/runway.
Every day, keep track of your cash burn.
Manage your cash on a daily basis to ensure that it lasts until you can raise your next round of funding. Make sure your accounts receivables are paid on time, and your accounts payable are processed slowly.
Employees vs. Independent Contractors
By recruiting your personnel as contractors rather than employees, you are exposing your organization to Department of Labor concerns. Make sure you have a system in place for appropriately classifying staff. If you're unsure, consult an employment lawyer.
Updates on the company should be disseminated regularly
Establish a schedule for sending firm updates to your investors and supporters on a regular basis. Make a template and use it over and over. Don't miss out on any new information. Keep your investors happy by being proactive.
Recruit a seasoned accounting team.
Don't cut corners when it comes to accounting services. In the long run, you'll be sorry. Hiring an experienced staff will help you avoid making costly blunders. In the long run, the right accounting staff becomes a partner.
Make Sure You're Protected Enough
Over 75% of the businesses we work with are uninsured.
Don't be a penny-wise and a dollar-foolish individual. Make that you have the appropriate coverage, plans, and restrictions in place.
Now is the time to establish a banking relationship.
Develop your financial ties before you have a need for them. A strong banking relationship will enable you to obtain a line of credit, debt financing, and other financing options that will allow you to expand your company while maintaining more equity. Don't put it off until you're in desperate need of it.
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