Accounting For Startups | Graphite Financial

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Accounting for Startups:

Understanding the Basics and Beyond

Josh Leider

Josh Leider - Head of Growth

March 14, 2024

If you’re running any type of business, you already know the importance of cash flow. But ensuring that your finances are in order is perhaps all the more important for a young, emerging startup business. Startup businesses need to be certain they have a solid foundation to stay organized, earn funding, keep their books in order and, ideally, scale and grow over time. It’s easier said than done, and it’s a big reason why the right partner is so crucial in this journey.

Yet, so many new businesses attempt to be their own accountant in the early days of their organization when cash flow is at a premium, but this isn’t always the best course of action. A good financial start up accounting partner is more than just someone who does financial transactions and keeps the books accurate and clean, but acts as an extension of your business that can help you scale and grow, while meeting the unique needs of a new company.

Additionally, accounting for startups often consists of activities that include:

  • Accurate financial planning
  • Compliance with tax law
  • Strategic outlook for business growth and sustainability

Read on to learn more about the value of an accounting service for startups and contact Graphite Financial Accounting Services today for more information.

What are Startup Accounting Services?

A startup accounting service is an outsourced partner that provides all the services that a good financial firm should. We’re talking about services that ensure a business’s financial health, including a solid bookkeeping process, financial reporting, tax planning, invoicing and accounts payable, budgeting, fundraising preparation, inventory management, payroll processing and more – but catered to a young, emerging business.

But perhaps one of the more important things for a startup firm is that a trusted financial partner can perform these crucial tasks so that you – and any of your employees – don’t have to. This frees up more time to focus on growing and running your business, as any business owner can trust that their startup’s financial health and operations are in good hands and being taken care of properly.

It’s estimated that only about 10 percent of all startups are truly small enough that any accounting can be performed in-house. For the other 90 percent, working with a trusted, experienced partner can pay – literally.

 

Different Types of Startup Accounting Services

 

There are various types of accounting services available to startups. Here’s a brief overview of some of them:

  • Financial reporting: It’s important to have accurate financial statements for any business, let alone a young, emerging company that’s trying to attract investors and raise funds. Good financial reporting also ensures timely payments are made to suppliers and that pricing remains competitive.
  • Bookkeeping: Cash flow is key in any business, let alone in a startup business that’s still trying to establish itself on the market. Bookkeeping is key not only to managing and getting an accurate cash flow statement, but for tracking expenses, proper budgeting, and setting short and long-term business goals.

Tax planning and compliance: Everyone has to pay taxes to Uncle Sam, but startups may be eligible for various tax credits and subject to various benefits compared to more established businesses. A good accounting for startup service will provide a tax service that does more than just ensure your business tax return is filed, taxes are paid, books are audit-ready and that you comply – it will also help you receive all the credits and benefits available to your firm as a startup business

Benefits of Outsourcing Startup Accounting Services

We already talked about one of the big benefits of outsourcing accounting for startups and working with a trusted partner. That being that it frees up time for you and any of your employees to really focus on the business, while having the peace of mind that your financial matters are in order. But there are other benefits to outsourcing these services as well. Such benefits include:

  • Access to expertise: When you work with a partner like Graphite Financial, you’re working with experienced experts who understand the unique challenges that startup businesses are faced with. These accounting service providers are thereby in excellent positions to anticipate and resolve potential issues before they even arise, while also serving as trusted consultants.
  • Cost-effective: While you may think that outsourcing may be more expensive than performing work in-house, it is actually more cost effective than hiring an internal team. The typical cost of fractional accounting or finance is a fraction of the cost of the team members you’d have to hire internally to get the same level of support. One of the most important things for an early startup is simply working within the business entity to establish market share and grow and scale. Having to handle financial matters in-house can sap these efforts and inhibit business growth.
  • Concentration Risk: Besides not often being feasible for a startup, hiring a single accountant poses a risk if they depart or underperform. Opting for a firm ensures continuity and alleviates concerns about coverage.

 

How do Startup Accounting Services Work?

For businesses that elect to outsource their financial services, we suggest being as proactive as possible with such efforts. The sooner you select an accounting for startups service provider, the better off your business will be. Once you do settle on a provider, you can work together to ensure that they’re up to speed with your operations and goals. Here’s how the process of engaging with a provider works, both in the short and long-term:

  • An accounting service provider will carefully evaluate the financial needs and goals of a young business, and ensure they are following generally accepted accounting principles.
  • After this first step, an accounting provider will set up an accounting system tailored to the business’ unique needs. This likely includes accounting software and systems around basic bookkeeping, tax filings, fundraising, payroll and more.
  • Once a firm gets its feet wet, launches its product or service, and begins to gain market share, the next step is scaling for business growth. In this phase, ongoing accounting, investor reporting and strategic planning become all the more important.
  • Years down the road as a startup firm becomes more established and grows, it may bring financial support in-house. However, the value of a good partner should still not be lost. Even with in-house financial employees, a financial partner can handle various tasks and help further chart strategy and direction.

 

Initial Assessment and Consultation

    Let’s backtrack to the first phase of engaging with a financial service provider. Even before any financial reporting systems are set up, it’s crucial that the firm truly makes an effort to understand the business, its goals and the industry it’s operating in. You can’t downplay the importance of this initial assessment of the business structure when it comes to setting up and customizing the right financial reports and accounting systems that will meet the startup’s specific needs.

    Implementation of Accounting Systems

    After this initial assessment, the right systems can be implemented and accounted for. This is the step where accounting software is set up and integration with other financial systems occurs. This doesn’t just help the business in the short-term, but it can also provide the foundation to help a firm grow and scale over time.

    Key Factors to Consider When Choosing Startup Accounting Services

    Selecting a startup accounting firm isn’t as simple as it may seem. Like any important decision you’ll make in the early days of running your own business, it’s important to ensure that you’re doing your due diligence. Here’s a look at some of the factors to consider when selecting a startup business accounting firm to partner with:

    • Experience working with startups: As we’ve noted throughout this post, startup businesses have unique needs compared to more established firms. Hence, you’ll want to work with a partner that not only understands these needs but also has experience in your specific industry space so that they can effectively help your business navigate the challenges and opportunities unique to your industry.
    • Scalability and growth support: Is your financial partner able to grow and scale with you as your startup becomes more established? You want a comprehensive service provider that is able to provide you with additional support as you grow.
    • Communication and transparency: Communication is key in any working relationship, but especially when it comes to financial matters. Make sure you’re aware of communication preferences and that they jive with your business.
    • Cultural fit: Last but not least, it’s always important to consider comfortability and cultural fit when deciding on any potential partnership. Opting for a firm that maintains a low number of clients per team member can ensure personalized attention and tailored support. This can help lead to an even more effective and positive overall partnership.

    Graphite Financial Accounting Services

    As a leading provider of accounting services for startup businesses, Graphite Financial has the experience and expertise to help set financial direction and grow and scale your business. Graphite acts as a finance department, as a service, for early-stage and growing companies. From ongoing accounting services including bookkeeping, invoicing and accounts payable to robust financial reporting, tax returns and setting financial strategy, Graphite will pair your startup business with a team of financial experts that includes controllers, accountants and bookkeepers to develop the processes that best suit your young operations.

    Graphite aims to be more than just a partner, but a long-term extension of your business. We’ll help you get properly set up, scale with your firm as it grows, assist with raising funds and more.

    Graphite works with a number of leading brands, including Caraway, Confiant, Vital, Boisson and more, helping them from the early stage to the growth stage to the scaling stage.

    Just take it from Jordan Nathan, the Founder and CEO of Caraway, a non-toxic home goods company that launched in 2019. As a small firm with little funding, it selected Graphite as its accounting partner in the early days of the business and watched the finance function at Caraway take shape. From fundraising advice to business transactions to modeling different scenarios to helping Caraway scale, Graphite took much of the guesswork out of the financial side of things.

    Take the Next Step with Graphite Financial

    If you’re interested in working with an experienced, knowledgeable accounting service for your startup, look no further than Graphite Financial. As experts in accounting services for startups, we aim to become an extension of your business and deliver customized solutions. Contact us today to set up a free consultation and to learn more about our range of service offerings.

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