Startup founders operating on a limited budget often take on tasks outside their skill sets to avoid hiring staff or independent contractors. They quickly become marketers, operations managers, even bookkeepers—and that's not always a good thing.
When it comes to bookkeeping for startups, what you don't know can hurt you. "Owners resort to tackling the books themselves or making a lower-level staffer the bookkeeper. With no formal training or experience, it leads to mistakes and a costly fix by the accountant at the end of the year," says Thomas Williams, a tax accountant and co-founder of Deducting the Right Way®.
It's no wonder, then, that one survey reports that 54% of small businesses recognize the value of working with a certified public accountant or an accounting firm. It's not their only option, though.
Startups usually select one of three bookkeeping solutions:
- Paying a specialist, such as a bookkeeper or an accountant
- Using bookkeeping software in-house
- Combining staff-managed software with a specialist
The right choice depends on factors that include the company's structure and how it receives payments, along with staff capabilities. Here's what experts and business owners have to say about each bookkeeping option for startups.
Contract With a Specialist
Personal injury attorney Justin Hill explored several possibilities before outsourcing his bookkeeping and accounting to a professional. When an outside accountant guiding a staff member using QuickBooks didn't work out, Hill tried doing it himself. That took too much time, so he now provides a list of monthly transactions to a small accounting firm that does the rest. "This has been a lifesaver and a time-saver," Hill says.
Before outsourcing everything, though, consider whether this more hands-off approach is a good fit for your business needs and personality.
Use Accounting Software
The most popular software solutions are easy for even the least financially savvy individuals to use because they're designed for entrepreneurs rather than accountants. Ronika Khanna, founder of Montreal Financial, says they allow business owners to quickly generate reports, review receivables, and assess cash flow. In addition, she says, "The advantage of keeping the bookkeeping in-house is that they are able to save costs and have a better understanding of how their business is doing."
Popular software options include:
- QuickBooks, available in downloadable and cloud-based versions, offers a range of accounting functions that include expense-tracking, invoicing, and bill-paying. Pricing includes monthly fee options for freelancers and businesses, with add-ons for live bookkeeping, payroll, and accepting payments.
- FreshBooks, a cloud-based option that touts easy-to-use invoicing, time-tracking, expense management, and online payments features, is known for its customer service. "I like how it integrates with my bank and company credit card. It also allows me to grant direct access to my accountant at year-end and tax season," says marketing agency owner Nate Shivar.
- Wave is described by Chelsea Krause, content strategist at small business software review site Merchant Maverick, as "ideal for startups because it costs nothing and still includes the strong bookkeeping and accounting features you'd expect from a paid software." Wave also offers fee-based add-ons for payroll and accepting credit card and bank payments.
Pair In-House Software With an Accounting Professional
Many startups and experts recommend supplementing in-house bookkeeping with outside professional assistance as needed for general accounting advice and tax preparation. This can help prevent surprises at tax time.
"An important consideration for many business owners these days is to ensure that your accountant is technologically savvy and able to work with your accounting and other software," Khanna says.
No matter which option you choose, become familiar with the basic terms and concepts of bookkeeping, accounting, and taxes.
"It's your livelihood on the line, not your bookkeeper's," says Williams. "You must have an active role in your business finances—becoming a success or failure doesn't happen by chance. Read a book, take a course, pay for a consultation, watch videos—whatever it takes to learn the ropes."
With a little knowledge, you'll be certain to select the right bookkeeping option for your startup.