Almost every company manages a set of books, but the reason for record keeping can be very different from one company to the next. In fact, the same company may be maintaining a set of books for different reasons during different stages of the company’s lifecycle.
Why do you keep your book?
The very first reason for proper bookkeeping that comes to mind for most is to be compliant with taxes – after all, everyone pays Uncle Sam and you’ll need to know how much. But did you know accounting was built for so much more than that in mind? In fact, bookkeeping performed solely for the purpose of filing taxes have little or no value to the business itself.
By taking accounting to its full potential, you are able to review and use this financial information strategically – to improve and build competitive advantages.
During the beginning stage of a startup company, you’ll probably focus on record keeping for compliance – you can hire a traditional tax CPA who will book all of your expenses for tax compliance on an annual basis or use an online SaaS company like Mint, FreshBooks or Outright.com and be comfortable.
Build your own system
But we suggest you move towards establishing your accounting system for strategic reasons as soon as possible – which may involve co-sourcing your accounting functions to a third party expert. Be sure that they not only track all of the transactions accurately but are also able to provide your company with the information you seek beyond the traditional standard reports: balance sheet, income statement and cash flow report.
Steve Blank suggested metrics that may be more important than the financial statements itself which included: monthly burn rate (cash flow), customer acquisition costs, customer lifetime value, etc. for a startup company. See his blog post here. Find your reasons.