The Smarter Startup

What are the Important Financial Records for Startups to Keep?

Maintaining accurate and complete financial records is critical for compliance, business intelligence, and investor due diligence.

Let’s face it. Financial record keeping isn’t something that gets most startup founders excited. Between product development, going to market, and scaling the business, founders have other things they’d rather focus their time and attention on. However, keeping good financial records is just as important as anything else when it comes to scaling a startup. Failure to maintain accurate and complete records could slow down or derail your next investment round or future strategic plans.

Benefits of Good Financial Record Keeping

  1. Better decision-making: When your startup has detailed financial records, the founders and management team can make better decisions about investments and expenses. You have a clear picture of the financial health of the company, which enables you to plan ahead for cash flow needs and ensure you’re using funds in the most efficient way possible.
  2. Compliance with tax laws: Startups that don’t keep good financial records risk running afoul of tax regulations. Keeping a record of financial transactions, invoices, receipts, payroll, and other financial data is important for complying with tax laws and ensuring your company’s financial records are accurate during audits.
  3. Understanding the true state of your business: Good financial records give your startup an accurate understanding of its financial position including its assets, liabilities, and net worth. This helps you determine when you need additional funding, how much you can afford to spend on new initiatives, and what changes you need to make to improve your financial position.
  4. Enhancing the reputation of your company: Having good financial records can improve the reputation of your startup among investors, lenders, and partners. It demonstrates that your company values transparency, honesty, and accuracy in your financial reporting.
  5. Easier access to funding: Startups with good financial records are more likely to receive funding from investors and lenders. Investors and lenders want to see that your startup has a good grasp of its financial position and that it is managing its finances effectively.

Important Financial Records for Startups

1. Income Statements

Income statements, also known as profit and loss statements, are financial reports that summarize your company’s expenses, revenues, and net income over a specific period. Tracking income statements helps you understand your startup’s financial performance and identify areas that require improvement.

  • Frequency: Monthly or quarterly
  • Primary Purpose: Helps identify areas of growth and improvement
  • Recommended Tools: Quickbooks, Puzzle, NetSuite

2. Balance Sheets

Balance sheets provide an overview of your startup’s financial position by showing the business’s assets, liabilities, and equity. Keeping track of balance sheets provides insight into your startup’s financial health and helps predict changes in future cash flow.

  • Frequency: Monthly or quarterly
  • Primary Purpose: Provides a comprehensive overview of your company’s financial status
  • Recommended Tools: Quickbooks, Puzzle, NetSuite

3. Cash Flow Statements

Cash flow statements show the movement of cash in and out of your startup over a particular period. Monitoring cash flow statements is essential to understand your runway and avoid a cash shortage.

  • Frequency: Monthly or quarterly
  • Primary Purpose: Helps with cash management and forecasting
  • Recommended Tools: Quickbooks, Puzzle, NetSuite

4. General Ledger

Creating a sound chart of accounts creates a general ledger that will track the financial transactions a company has made. It is imperative to keep accurate records of financial transactions to ensure effective accounting practices.

  • Frequency: Daily
  • Primary Purpose: Ensures accurate accounting practices.
  • Recommended Tools: Quickbooks, Puzzle, NetSuite

5. Accounts Receivable and Payable

Keeping track of accounts receivable and payable helps you better understand your cash flow and ensure timely payment to suppliers or vendors.

  • Frequency: Daily or Weekly
  • Primary Purpose: Helps with cash management and forecasting
  • Recommended Tools: Quickbooks, Puzzle, NetSuite, Ramp, Stripe, Airbase

6. Depreciation and Amortization

Depreciation and Amortization is the process of allocating an asset’s cost over its useful life. Tracking these activities helps ensure the accurate valuation of company assets.

  • Frequency: Quarterly or yearly
  • Primary Purpose: Helps with tax planning and financial reporting
  • Recommended Tools: Quickbooks, Puzzle, Netsuite

7. Employee Payroll Records

Employee payroll records are essential for tracking employee compensation and benefits. Keeping accurate records can reduce errors and ensure compliance with tax and labor laws.

  • Frequency: Monthly
  • Primary Purpose: Ensures compliance with tax and labor laws
  • Recommended Tools: Gusto, Rippling, Insperity, Justworks

8. Product Development Costs

Tracking product development costs is essential for startups that create physical products or software. Keeping detailed records of development costs can help startups better understand the cost of goods sold (COGS) or Research and Development and improve pricing strategies.

  • Frequency: Monthly or quarterly
  • Primary Purpose: Helps with pricing strategies and improved COGS / R&D accuracy
  • Recommended Tools: Quickbooks, Puzzle, Netsuite

9. Marketing Expenses

Keeping track of marketing expenses can help your startup understand the cost of acquiring new customers and optimize the effectiveness of your marketing efforts.

  • Frequency: Monthly or quarterly
  • Primary Purpose: Helps with marketing ROI calculations and Customer Acquisition Costs (CAC)
  • Recommended Tools: Quickbooks, Puzzle, NetSuite

By accurately maintaining the financial records above you’ll be able to understand your startup’s financial position, make smart business decisions, and approach investors with confidence. Burkland’s startup CFO, bookkeeping, tax, and people operations teams are here to help. Contact us to request more information.