What are the key financial records that every startup should maintain?

Starting a new business is thrilling, but managing your money well is key to succeeding. It's important to understand your financial situation so you can make wise decisions and attract investors. This article will explain the important financial records that every startup should keep organized and easy to find. By having these documents ready, you can track your progress, find ways to do better, and confidently grow your business.

Here are the key financial records every startup should maintain

Bank statements:?Think of your bank statements as the raw data feed for your financial story. These are like monthly reports from your bank, detailing every deposit (money coming in) and withdrawal (money going out) from your business account. They show the actual flow of cash in and out of your startup.

Chart of accounts:?This is like a financial filing cabinet for your business. It organizes all the different accounts you use to track your money. These accounts could be for things like inventory, office supplies, salaries, rent, or even specific categories of sales. Having a well-organized chart of accounts makes it easier to categorize your transactions and understand where your money is flowing.

Invoices and receipts:?Invoices are sent to your customers when they owe you money for your products or services. Receipts are what you get from vendors or suppliers when you pay them for things your business needs. They act as proof of purchase and payment, keeping track of where your money goes and how much you earn.

General ledger:?Every single transaction, big or small, gets recorded in the general ledger. It shows the date, amount, and which accounts were involved for each deposit, withdrawal, or internal transfer of funds. This detailed record-keeping allows you to track every penny coming in and going out.

Financial statements:?These are like the condensed versions of your financial story, giving you a high-level view of your startup's financial health. There are three main ones to keep an eye on:

• Balance sheet:?Just like a personal balance sheet, it shows what your business owns (assets, like furniture or equipment), what it owes (liabilities, like loans or unpaid bills), and the difference between the two (equity, which is essentially your net worth). Think of it as a photograph capturing your startup's financial standing at that moment.
• Income statement (profit and loss statement):?This report focuses on a specific period, like a month or a year. It shows how much money your business made (income) from sales or other sources, and how much it spent (expenses) on things like rent, salaries, and supplies. The bottom line of this report tells you if your business made a profit (income was more than expenses) or a loss (expenses were more than income). This is like a report card for your earnings, showing how well your business is performing financially.
• Cash flow statement:?This report tracks the movement of actual cash in and out of your business. It shows how much cash you received from various sources (like sales or investments), how much you paid out for expenses (like rent or salaries), and any changes in your cash balance. This helps you understand how much available cash you have to cover your expenses and invest in future growth.

Additional important records: ?

• Depreciation and amortization: Spreading the cost of an asset over its useful life is achieved through depreciation and amortization. Tracking these activities ensures accurate valuation of your company's assets. Record these quarterly or annually.
• Employee payroll records: Maintaining meticulous employee payroll records is essential for tracking compensation and benefits. Accurate records minimize errors and guarantee adherence to tax and labor laws. Monthly updates are recommended.
• Product development costs (for startups with physical products or software): Tracking development costs empowers you to gain a deeper understanding of your cost of goods sold (COGS) or research and development (R&D) expenses. This knowledge aids in refining pricing strategies. Update these records monthly or quarterly.
• Marketing expenses: Monitoring marketing expenses allows you to assess customer acquisition costs and optimize the effectiveness of your marketing efforts. Tracking these expenses monthly or quarterly is beneficial.

Keeping meticulous financial records is not just about complying with regulations; it's the cornerstone of informed decision-making for your startup. By maintaining the key records outlined above, you'll gain a clear understanding of your cash flow, profitability, and overall financial health. This transparency empowers you to make strategic choices about resource allocation, identify areas for cost-saving, and track your progress towards achieving financial goals.?