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Posted by Brett Romero - 28 August, 2019

Startup Accounting Best Practices: Why Its More Than Just Money In vs. Money Out

To say that accounting and finances are important in terms of startup success is an understatement. According to one recent study conducted by U.S. Bank, it is estimated that as many as 82% of the small businesses that fail every year due to one simple reason: cash flow management.

But even a statistic like this can be somewhat misleading depending on your perspective. When you hear the term "cash flow," it's easy to assume that a small business that failed simply didn't have the oversight it needed into "money in versus money out." They spent more money than they were bringing in and at that point, failure is ultimately only a matter of time.

Well... yes and no.

Cash flow is an essential part of small business and startup accounting, but it is only one small part. The topic may be wider reaching than you initially thought, but thankfully that doesn't necessarily mean it's something that is impossible to get a handle on by yourself.

Understand the "Moving Parts" of Business Finances

Even going beyond simple "money in versus money out," employees and payroll are a massive part of small business.

Remember that you're not just responsible for paying your employees - you need to maintain records on withholding, unemployment, worker's compensation and so much more. All of this ultimately affects how much money you have "in," which dramatically alters how much money can "go out" at any given time.

Another one of the most important "moving parts" of business finances doesn't have anything to do with money at all - or at least, not literally. The importance of keeping a proper, thorough eye over your inventory cannot be overstated enough - regardless of the type of business you're running or even the industry that you're operating in.

Understanding your fixed versus your variable costs is also critical, as it will directly affect the financial decisions you're even capable of making in the future. Fixed costs happen whether your business is making money or not, while variable costs adjust in scope and need a bit more personal attention given the circumstances.

Simply put, if you don't know everything there is to know about your inventory at any given time, you essentially don't know much at all. Maintaining detailed, accurate records of what you have on hand helps you use the past to identify trends, patterns and other factoids that can help you make better decisions in the coming year.

It can also help you prevent stealing and misplacing merchandise - something that costs businesses a massive amount of money each year. It also gives you an insight into performance and when new purchases are needed, both of which feed back into your cash flow projections in a direct way.

Monitor That Return on Investment

Another essential step to keep better track over your startup finances involves going beyond just paying attention to where you're spending money and taking a closer look at what that money is getting you. It's perfectly fine to spend money on new and valuable assets, provided that the return on investment justifies the initial action in the first place.

Case in point: your website. Your website is something that you need to constantly monitor and actively change, making an effort to keep up with all of the latest trends and best practices and making sure that you're always adding fresh, valuable content that your audience is interested in. You should be using tools like this Website Grader to determine whether or not the current design and execution of your website is aligned with your long-term goals. If your site isn't generating the type of return on investment you need to generate the results you want, tools like the website grader will also help identify improvements that you can make to increase that ROI moving forward.

The same basic concept is true in terms of the marketing collateral that you're putting out into the world. Think about it like this: you can spend a great deal of money to hire a third party designer to come up with a new Infographic or presentation, but weigh the costs of doing it yourself or using a tool. Doing it yourself might take a bit more time, but using various presentation themes and other template design options that are available on line, can help you to arrive at an end product that is largely the same quality at a significantly cheaper cost. This will increase your ROI, but also free up funds that you can put elsewhere into your business where they will make the most impact in terms of your goals.

In the End

Keeping track of "money in versus money out" is and will always be important, particularly during those precarious early days in the life of a startup. But this is just one small part of a much larger story - it isn't the end of the story in and of itself.

Understanding how your business is performing financially is essentially the key to everything. A business growth strategy lets you see what is and isn't working in terms of strategic results and return on investment, allowing you to make better and more informed decisions down the road. It's also something of a glimpse into the future - if you know how you're doing today from nearly every angle that you can think of, you're in a better position to make the moves you need to get where you actually want to be tomorrow and beyond. 

Control your company's cash flow

Topics: Finance, Cash Flow, Management

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