Accounting for Startups – how to get started

While starting a business is exciting, doing the accounting can often seem rather scary, boring or both. However, understanding the financial health of your business is key to its success. There are a few simple steps to follow, in order to get started with accounting.

The days of endless and complicated Excel and Word files are over. Today you can choose between a variety of helpful tools that make your life easier when it comes to accounting, time tracking and the like.

Many small businesses choose to work with a software as a service (SAAS) solution. They are accessible everywhere, often available with a smart phone app and are always up to date with your data securely stored in the cloud.

Whether you have a cash journal, contracts, invoices or the related bank statement (no booking without a receipt!), you have to document your income separately from your expenses.

To avoid issues with the financial authorities, make sure to fulfill the legal requirements when writing an invoice. Again, I recommend working with an app or software to ensure a professional layout and to prevent mistakes like a wrong invoice number.

Not sure what expenses you should document? Always make a difference between private and real business expenses. And never forget to keep all your receipts somewhere physically. Unfortunately, in Germany storing your receipts digitally is not sufficient yet.

Imagine where and how you will store all your accounting information needed by the financial authorities for the next ten years… Better start getting organized.

In addition, in order to stay on top of your business, you should always have an overview on what you are earning and spending and if there are any outstanding payments from your customers.

One important part of knowing the financial situation of your business is to know what taxes you will have to pay. In Germany you have to check whether you have to:

• Pay VAT to the state: if you are not registered as a “Kleinunternehmer” e.g. making less than 17.500 Euros a year, you have to do your monthly, quarterly or yearly “Umsatzsteuervoranmeldung”
• Pay “Gewerbesteuer”: if you have registered your business as “Gewerbe”

Finally yet importantly, you will have to estimate your profit. Based on that estimate the amount of income tax that you have to pay upfront will be calculated.

If you follow these 5 steps your end of year reporting is well prepared. Of course, at the end of the year you are probably well advised to hire an accountant. But if you have done a good job throughout the year he can focus on advising you instead of being paid to do the basic bookkeeping.

One way to collaborate efficiently with your accountant is yet again using a software. For example Debitoor an online invoicing and accounting software offers the possibility to share your data with your accountant in the right format. Knowing the struggle many startups have with accounting, Debitoor’s aim is to guide you through the accounting process intuitively, even if you do not have too much prior knowledge on the topic.