Running a new startup is tough. It takes long hours, lots of sweat equity, and tremendous planning.
While you may have a handle on getting your startup off the ground and bringing your products or services to market, do you know what you need to do when it comes to your finances?
One of the most important things you can do is prepare good financial statements. Why? It’s the only way you, your board, your staff, and your investors will know where you stand.
Good reporting helps you with financial analysis as well as your budgeting.
Let's take a look at five financial reporting tips for startups
#1: Choose the Right Financial Reporting System
When it comes to reporting, you can choose between a cash system or an accrual accounting system.
For many startups, an accrual system works better because you can match expenses to revenue more effectively.
In order to truly understand the performance of your startup, you want to choose the right system for your needs. It’s worth noting that you might use a combination of both – cash accounting for your taxes and accrual accounting to help with decision making.
#2: Create Your Internal Controls
As you begin taking care of your finances, you want to set internal controls. This means establishing the procedures for your financial reporting processes.
Here are a few to consider:
- Have multiple people attending to your financial tasks. For example, if one person handles your accounts payable, another person should record the transactions, and yet another should sign the checks.
- From the beginning, make it clear that you or someone in an authority position will sign off on large transactions. You determine what “large” means.
- Reconcile your balance sheet accounts monthly. Either do this in-house or outsource it.
These are very important to making sure your money is exactly where you think it is, and no one is misusing funds. It also ensures more accurate financial reporting.
#3: Set Deadlines
Often when new businesses begin, their financial reporting has a huge lag time. This isn’t helpful to you or your investors.
Insist on deadlines for your financial statements.
For example, you might request them within one week of the end of each month. This way, you have the information you need to make decisions and changes as needed.
You certainly don’t want your statements two or three months after the end of the reporting month. Even one month later lessens the value of the report.
Be firm, and whether you’re using in-house people or outsourcing your accounting, insist on a proper time frame for receiving your financial statements.
#4: Prepare Reports with Investors in Mind
Your financial statements are vital to your decision making, and good reporting is the only way for your investors to make sound decisions.
Make sure your reports attend to the following items for your investors.
- Include all information your investors and creditors need.
- Make sure your report includes fair value information so it’s easier to make financial decisions.
- Include any changes in net assets and any changes in fair values.
- Your cash flow statement is important because it provides the information you need to analyze your growth and project for the future.
- Include disclosures as necessary.
When it comes to financial reporting for startups, your system must be cohesive for it to work.
You want a system that’s transparent. Anyone reading your financial statements should have a clear understanding of where your startup stands financially.
Your system should be comprehensive in that it can capture all the transactions and information you need.
Finally, your financial reporting should be consistent. Each department should report in a consistent manner, and you want to create reports for your investors that are the same from month to month.
Knowing where your startup stands financially is crucial to your success. It helps you know if you’re growing, hemorrhaging money, need to market more, or where to allocate your resources.
Accurate financial reporting helps you and your investors make decisions to help your startup grow.
Are you a new startup ready to succeed? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your HR duties, finances, payroll and more to us. Contact Escalon today to get started.
Image: rawpixel on Unsplash