Accounting for startup growth

When you’re just starting out, it’s easy to put all of your time and energy into building your business. But you also need to make a living, so how can you live the dream and manage your business finances?

For startups, managing cashflow and keeping a close eye on finances is a core part of running a business. In fact, accounting for startups is so important that many businesses with great products and plenty of customers fail each year just because they don’t get a handle on their finances. 

This is common sense but many first-time entrepreneurs shy away from anything to do with accounts, either because they are not well versed in the world of accounting, or because they wrongly believe that the numbers will look after themselves. Others hope that the accountant they have hired to do the end-of-year tax returns will also keep a watch over the health of their cashflow (they won’t, unless you pay them extra).

Learn about cashflow

So, there’s no other way to put it – getting to grips with your accounts and cashflow is your job. Cashflow is the lifeblood of all businesses and you simply must take control of it right from the start. 

You need to be your own finance team until you can afford to hire one. Otherwise, it’s hard to know what spending adjustments need to be made, whether you need to follow up on your receivables or payables and if, overall, month after month you will have enough cash to carry on.

Spreadsheets aren't a long-term solution

Many startups start their ‘accounting’ with a pen and paper, and a shoebox of receipts. Later, they progress to using spreadsheets – and often leave it at that. But while spreadsheets can perform many tasks, it is of very limited use in the hands of those lacking the necessary expertise.

Setting up a spreadsheet that will meet all your startup accounting needs requires a lot of thought and planning. You need to know exactly how you are going to use the data before you start, because you might not be able to reconfigure it later. Spreadsheets are error-prone too (imagine the flow-on effect for your business if you enter R100,000 instead of R10,000). It’s also virtually impossible to keep track of who’s making the changes.

The benefits of cloud accounting software

Cloud accounting software can reduce the administrative time and effort put into managing accounting so you can focus on growing your startup rather than struggling to get financial insight. And the real beauty of it is that you don’t need to be a financial whiz to use it. 

Because everything is done online, you can run your business and have a real-time view of your finances from anywhere, anytime, as long as there’s internet access. And don’t worry, your data is completely secure even if your device is lost or stolen. Cloud systems are more collaborative than traditional desktop accounting systems. Your accountant will be able to step in seamlessly when you’re ready to bring them on board.

“I like that our accountant can log in to our system at any time to see what we've done, and add journals and adjustments.”

Clemi Hardie,
Founder (and Head of Pencils) at Noodle Live

Achieving your long-term goals

Cloud accounting software can give you the insight you need to make informed decisions about where you want your business to be in one, three, five years’ time and what you need to do to get there.

For a startup, it’s very important to get into the habit of setting aside a regular time to review your numbers each and every week. It may be a struggle at first if you’re not used to it, but making financial management part of your routine pays off in the long run. Only then are you able to react to any potential problems with cashflow, such as non-paying customers.

If you only keep manual records of your expenses and income or use a rudimentary spreadsheet to record transactions, you can never say with confidence that you are making enough to stay in business beyond the next few months.

The right software can help secure funding

To achieve growth, you may also have to apply for additional funding at some stage. You can use accounting software to prepare charts and forecasts of your costs and revenue to show potential lenders that you have a solid business plan in place, and that you'll be able to pay them back.

Now, as bank loans continue to be difficult to secure, alternative non-bank lenders are fast becoming the primary providers of loans to startups and small businesses. If you use cloud accounting software, it can make the loan application process easy and straightforward.