13 Jan 20

Accounting & Finance for Small Business and Startups

Even if it isn't your strong skill, you still need to know the basics of accounting, finance, and financial analysis to ensure your startup and business is being run right and if there is any need for change in strategy.

Most founders, cofounders, operations directors, division heads are not accountants by trade or even if they might have studied accounting and finance in college, numbers are just not their cup of tea and make them dizzy. But no matter what their background is, product development, HR, management, sales, production or anything else, they have to learn the nuts and bolts of accounting and finance to keep a grip on business and operations.


So what and how you should learn accounting and finance, join MBA or read books? 

Accounting for small businesses and startup is a fairly simple process compared to big companies where more complex accounting structures are used. You can subscribe to our short online courses here which are topics based on your specific needs.  

  1. Fundamentals of Accounting for Small Business and Startups- click to enroll

  2. Financial and Operation Budgeting |Business Plan for growth- click to enroll

  3. Basics of Raising Finance for startup & Business Valuation- click to enroll

  4. Understanding Business Model Canvas with real life examples- click to enroll

  5. Financial Analysis and Ratio Analysis 

Accounting for a small business would have the following three accounting priorities: 

  1. to ensure their revenues exceed expenses, 

  2. keep their books clean and pay their taxes. 

  3. Analyze numbers to make sound business decisions

Some Practical Tips for Small business owners to make maximum use of accounting.

1. Keep business and personal accounts separate.

One of the messiest accounting blunders small business leaders can make is to mix their business and personal funds. Although plenty of entrepreneurs chip in their own startup money, business revenue and expenses must be kept separate from personal ones. 

There may be a very thin line between personal and business expenses however as a thumb rule assume if expenses are going to help in growing business directly or indirectly and not owners personal enjoyment can be recorded as business expenses. It is important to identify such expenses to understand real profitability of your business

2. Create profit and loss statements regularly.

A profit and loss statement is a staple accounting tool that summarizes your company's income and expenses over a given period. All public companies are required to put them out once per quarter. Although small business owners aren't required to create them by law, P&L statements are great ways to see whether you're on track to meet your financial goals. 

To generate a P&L statement ...

  1. Total up the revenue you generated in the quarter.

  2. Itemize your company's expenses. Break those expenses into two categories: operating expenses and cost of goods sold (COGS).

  3. Subtract total expenses from your gross profit to get your operating profit.

  4. Subtract interest and taxes from that operating profit, and you'll know whether your business operated at a profit or a loss that quarter. 

Although individual P&L statements are valuable, quarter-by-quarter comparisons are even more important. Are your operating expenses growing? Is your profit shrinking, despite the fact that your sales figures are up? Checking P&L statements against one another yields those sorts of insights. Learn more from this course Financial Analysis and Ratio Analysis 

3. Keep a close eye on accounts receivable.

Although staying on top of accounts payable is important, it doesn't dictate the company's survival like accounts receivables do. If there isn't money coming in the door, then the company can't continue to operate.

Each month, review the percentage and total amount of outstanding revenue. Generally speaking, no more than 10 to 15% of your accounts receivable should be past due. Reach out weekly to those clients. Don't send them to collections on a whim, especially if you want to work with them in the future. But you also can't let them stiff you.


4. Make Forecasts for your business in near future to make spending decisions especially capital and fixed in nature.


It’s always important to keep an eye on how the business looks like in the next three to six months. Revenue and forecast are usually made based on past business results however future plans and PESTEL situations will guide most of the budgeting. 

Once the business has made a budget/business plan that would serve as a guideline to business decisions and BenchMark for performance measurement.