Three financial needs of your startup

For all the excitement that comes with starting a business, there are dull details. You may not want to spend time on them, but the nitty-gritty financial aspects can greatly affect your business, and they’re certainly vital for growing your business.

Addressing these three key items will help you ensure your company is ready to grow, and is less likely to run into speed bumps along the way.

1. Regulatory identification

There are agencies for which you will need identification numbers. The best place to start is with a federal tax ID number, and you’ll need it for several reasons:

  • establish a bank account in the name of the business;
  • register with your Secretary of State;
  • file and pay employee withholding, and payroll taxes; and
  • file income tax, depending on your company’s structure.

There is usually a different number required by state agencies for unemployment taxes, and for state income tax withholding, if applicable.

2. Chart of Accounts

A chart of accounts (CoA) organizes your assets, liabilities, equity, revenues, and expenses. It allows you, and potential lenders and investors, to understand the money moving in and out of your business. And having a good chart of accounts allows you to plan for growth.

I recommend to my startup or relatively new clients that they spend time considering what revenue categories they want to track, as they will influence how best to set up the CoA.

Let’s say you sell, maintain, and service computer hardware and software. Those are broad categories, and may seem adequate to begin with, but I’m willing to bet that before six months is up, you’ll wonder if the revenues are from servers, desktop PCs, laptops, or accessories such as monitors, keyboards, battery backups...well, you get the idea.

If you’ve dumped all the revenue in one account, you’d have to go back and break out that info from other reports; a time-consuming task. But if you have a primary revenue account of Hardware, then sub-accounts labeled Servers, Desktop PCs, Laptops, and Accessories, you would already have that info. You might even want to have further sub-accounts under Accessories labeled Monitors, Keyboard/Mouse, UPS, and so forth. But don’t get carried away!

And you won’t want to overlook the labor revenues of installing, maintaining, and servicing that equipment. It’s a good idea to break those out, too. If you find you spend a lot of time servicing your equipment, there may be a business opportunity to sell preventive maintenance agreements, and that margin may be better than emergency servicing.

Expense categories need similar consideration. If you dump all insurance expenses in one account, and you see an upward trend in that account balance over time, how will you know, without digging back through your files, if it’s because general liability rates or workers comp rates have gone up?

Finally, you can speculate what might happen when you need to grow. How will your chart of accounts change when you have more expenses? How will your financial situation change when you add a new revenue stream?

3. Fixed assets

Fixed assets are your company’s tangible long-term assets. We’re talking about land, buildings, equipment, and furniture. If you account for fixed assets now, you’ll have a mechanism in place for when your business grows and acquires more fixed assets, or divests of them.

Another reason to record your fixed assets is that another business may value them when they consider purchasing your businesses. Many startups today have an exit plan, a plan to sell their business once it grows to a certain degree. Buyers will value your fixed assets because they may want to use those assets for themselves.

Want somebody to help you with the more boring parts of growing a business?

We help business of all sizes navigate any potential financial roadblocks so that their owners can focus on the more fun parts of building a business. If you’d like bookkeeping assistance, let’s talk.

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