According to Moneyzi, “66% of Americans” would be worried about how to cover their living expenses for a month if they lost their primary source of income. Savology also reports that “69% of Americans have less than $1000 in emergency savings.” This, and countless other statistics reveal a significant issue with personal financial planning. Now, imagine that an individual who is unable to take care of their own finances becomes a startup founder or cofounder or even a top management staff in an organisation. What do you think would be the quality of their decisions on the business’s finance? 

To ensure that your startup does not fall victim of poor financial planning, we will be discussing - through this article - the critical topic of startup finance, telling you what accounting and bookkeeping is all about, how they benefit a startup, how best to go about choosing a financial planning tool, and what we think are some of the must-have financial planning tools. 

What is Startup Accounting and Bookkeeping?

Startup accounting and bookkeeping describes the day-to-day process of managing startup revenue, expenses, debts, and financial assets by making detailed and accurate financial records. This is slightly different from startup finance, which is more complex and involves making projections. Let’s go on to see how these three terms are related. 

Bookkeeping is probably the most fundamental component/aspect of accounting. It involves keeping “books” by meticulously recording the details of every financial transaction that takes place within a business or startup. Accounting, on the other hand, involves bookkeeping but it does not end there. The practice takes care of examining financial records in a bid to uncover areas for improvement and growth - in this case, startup improvement, growth and expansion. 

Now we understand that bookkeeping exists within accounting - but that there’s more to it. The very same thing happens with finance in that it encompasses the accounting practice but also goes forward to involve forecasting a startup’s expenditure and trying to predict its growth. 

Benefits of Financial Planning in a Startup

Financial planning plays a crucial role in the long-term success of any business. It is one of the top considerations that startup founders need to make if they want to see their business grow and expand. The specific benefits of proper financial planning in a startup include:

Preparedness for Business Emergencies:

Peter Buonora famously said, “If ROI is that obvious and certain, the idea probably isn’t that risky (or transformational) in the first place." This statement explains that business naturally involves risks and that the introduction of innovation always tends to increase these risks. Of course, risks could be unforeseen or even unprecedented, leading to an outright business emergency. At this point, a startup’s culture of proper financial planning will come in handy by making ready cash and non-cash assets to sort or resolve the emergency. 

Higher Standard of Living:

Financial planning, when done right, helps reduce unnecessary business expenses and debts thereby creating room for more meaningful use of funds. With more money available in the business purse, startups can effect salary raises, bonuses or commissions. This will directly improve the standard of living among employees and can significantly boost their performance and/or dedication on the job - which almost certainly ensures growth and innovation: 

Ease of Asset Acquisition:

Aside from increasing the standard of living of employees, businesses that have proper financial planning in place can go on to make investments (in the form of a profitable business campaign or programme) or acquire/develop assets (in the form of a new and valuable business model or product). This is a really good approach for a startup as it will increase their valuation in the eyes of investors and business analysts. There are many different types of investments businesses can make and there’s an equally high number of assets they can acquire. For example, startups can buy and own shares of other more developed businesses. 

Better Debt Management:

Debts and expenses both exist on the negative side of every financial or accounting activity. Nevertheless, debts are (believably) farther in than expenses. The reason why this is so is that expenses are directly associated with business operations whereas debts are not. This creates the idea that expenses are somewhat beneficial since they keep the business moving and are sure to make an ROI. On the other hand, the same cannot be said concerning business debts. Bearing this in mind, you will understand that debt management keeps business employees (especially the top management) from the heaviness and mental stress that is easily associated with debt owing. Secondly, debt management keeps a business from forcefully closing up. 

Ease of Financial Investigations and Audit:

Proper accounting and bookkeeping is an approach that promotes and, perhaps, leads to compliance with financial regulations. We say this because the culture and activities of proper financial planning involves creating and preserving records, evidence and references of a business’s financial transactions and analysis. This makes available necessary documentation which are really helpful in financial audits and investigations. Ultimately, when a startup does things that support audits and investigations, you could believe that it is doing so because it is compliant with financial regulations. 

Choosing The Right Financial Planning Tool 

There are no second options when it comes to using the right financial planning tools. As we’ve mentioned, this puts a business on the path to compliance. It eases the process of auditing and investigating, and also increases the financial standing of a business. So what could you do to get your business towing that path of financial correctness? Here’s the answer:

Consider the Integration Feature of your Proposed Financial Tool

Operating in today's financial ecosystem means relying on a number of different tools and technologies. Although startups can decide to streamline their procurement process by sticking to one brand of products across the board, they still have to be sure that their chosen tool or brand (including those for financial planning) can sufficiently interact with other widely available tools, products and brands. Performing financial planning with a tool which barely supports integration could render a startup incapable of serving a client. This could happen if the client’s preferred tools or processes cannot interact with those of the startup. 

Consider the Accuracy of the Tool

Businesses these days rely heavily on the digital software and tools which they make use of.  In the accounting and bookkeeping practice, this dependence must be matched with absolute certainty that a tool of choice is accurate. For example, almost all financial tools offer computation for taxes or product sales, but how accurate are these software when it comes to representing data in graphs or pie charts? Moreover, you may want to ask how detailed these tools are in terms of the quality of reports they generate or what level of precision they offer when they forecast cash flows. 

Consider the Usability Feature 

Let’s imagine that a startup looks to perform an internal audit and so it goes ahead to purchase a financial planning tool - considering everything but the usability feature. After getting hands on the tool, the startup quickly employs it in its audit process. However, let’s say that along the line, our imaginary startup completes its audit, finds it smooth and easy to input expense information (gotten from the audit process) on the planning tool but, unfortunately, cannot figure out how to use the software to go about processing the data (for tracking expenses, identifying errors in the startup’s expense records or calculations, and forecasting future expenses). 

This usability problem could force the startup to halt the audit for hours or even days. If it is really bad, the issue could require the startup to purchase a new financial planning tool altogether. The situation might also go further to cost the startup thousands or millions of dollars. From our illustration, it is necessary to just remember that the right tools are always easy to use. In addition, the fact that accounting and bookkeeping could be really complicated makes it all the more necessary for startups to find that one financial tool which employees do not find difficult to operate or use.  

Check User Reviews

User feedback often proves helpful in revealing the inconsistencies of a system or product. The strategy works in a lot of cases. For startups looking to find the right financial tool, it could serve to steer them away from tools that have been found to deliver unreliable accounting results, offer poor quality data representation, or present difficult book entry processes. Aside from that, simply assessing user reviews and feedback could help a startup find finance tools that fit their budget, company size, or other user-side specifications without sacrificing on quality. 

4 Must-Have Financial Tools

Finance is more than just bookkeeping. Startups that know this sometimes go the extra mile to break down their financial approach and activities into categories such as payment processing, expense tracking, payroll and invoicing, and the actual practice of accounting. They might need to have a tool for each category of financial task to make the most of this. However, we advise startups to be careful with such decisions as it could present strong positive or negative implications. 

For example, by using a separate tool for each category of finance, startups can successfully maximise their performance. On the other hand, this approach could also negatively impact the human and financial resources within these organisations. Having said that, we will now go ahead to reveal one must-have tool for each of the five breakdown categories of finance listed above. 

Accounting Tools

Accounting tools are tools that work great for financial data entry, organisation and analysis and a must-have option in this category is QuickBooks. QuickBooks begins by saying, on its website, that you can “save 13.3 hours each week” as proven in a 2022 survey. The software offers automatic tax calculation and reporting. Also, it has a unique cash flow planner feature that shows insights on the immediate cash situation of a business as well as a 90-day projection of what the cash flow could look like. If your startup wants a deep dive into inventory management, the QuickBooks software also appears relevant as it offers real-time inventory tracking with auto calculation of sold products, reports on best selling items, and picture, price or category classification of inventory. 

Payment Processing Tools

Payment processing comes in at the point where a handshake occurs and a financial transaction takes place. If you ask us, we will say that the must-have payment processing tool for financial operations in a startup is Stripe.  Stripe describes their product as a “suite of APIs powering online payment processing and commerce solutions for internet businesses of all sizes.” The application comes with interesting features like Radar which works for detecting, preventing and managing fraudulent financial transactions, and Terminal for customizable individual payments. 

In addition, Stripe says that businesses can “capture recurring revenue” through its Sigma feature that creates revenue reports, and a Revenue Recognition feature that prevents the drawbacks of accrual accounting (a form of accounting in which transactions are recorded in books even if payment has been made for products or services exchanged in such transactions). Businesses can also add a little fancy to their operation by building customised spend or charge cards in physical or virtual forms for their customers. 

By their nature, payment processing tools are required to feature security, high-speed transfers, and ease of use. The security feature ensures that the digital accounts of users are safe and cannot be broken into, the high-speed transfer feature makes it possible to receive and send funds instantaneously, and the ease-of-use feature ensures that users are able to correctly understand and navigate the tool. 

Expense Tracking Tool

The purpose of an expense tracking software is simply to monitor the weight and direction of business expenses. These software paint a clear picture of how much is spent on what and how frequently this happens. In a typical situation, it allows startups to carefully monitor and regulate their activities, ensuring that their total revenue is reasonably above their total expenses and debts to save the business from collapsing.  

Our must-have expense tracking tool is Expensify. The closest alternative to this amazing software is Concur. However, Expensify is a better recommendation for startups since it is designed for use by individuals or small businesses unlike the latter which serves medium to large businesses. 

Expensify handles receipt scanning, travel bookings, payroll and expense management. One particularly interesting feature of the tool is the Expensify corporate card which businesses can use for paying their expenses. The Expensify card offers between 1% and 4% cash back to businesses depending on whether they are new users, whether they spend up to 250k+ per month, and more. Users can also sync tax rates to their expenses to allow advanced and transparent tax deductions.  

Payroll and Invoicing Software 

Payroll and invoicing is a huge part of the accounting and bookkeeping practice. The term payroll refers to a list of payable employees in any particular business. Similarly, the term is also used to describe the amount of money businesses pay to their employees for their services. 

Our must-have tool in this category is Gusto. Compared to a highly competitive tool called ADP, Gusto takes the lead by offering a fair price and high-end features. Other features of the application include recording the time and attendance of business payroll employees, issuing employee benefits, facilitating hiring and onboarding processes, and creating valuable insights and reports. 

Gusto plans range from Simple at $40/mo + $6/mo per person, Plus at $80/mo + $12/mo per person, and Premium at an exclusive price. Payroll is an accounting category that helps startups avoid making excess salary payments, as well as successfully plan and manage human resource activities. More importantly, it ensures that every payment is in line with tax and legal requirements.

Conclusion

Startup finance is one thing every small business executive body talks about frequently. The reason why they do this is pretty straightforward: it plugs leakages in the company’s finances and helps to promote effective use of funds, particularly focusing on growth, expansion, and stability. If you feel like your startup’s finances need a revamp, this article will be a good place to start that journey - after reading, of course. You can go ahead to find more informative articles on startup finance here on our blog.

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