Welcome back to my startup blog. Thank you for taking the time to read it!
The last few blogs we discussed discuss the establishment of your business regarding the financial matters. Today we talk about administrative organization. This topic seems boring yet is essential. Learn to love it like you adore your new product!
Importantly, keeping good records is vital as a startup especially if you are accepting other people’s money for investment. Here are some basic issues to consider and establish in your company.
What records and reports to keep – Basic bookkeeping is important, as when you are audited by a company that wants to purchase your product or your company, they will want to see clean financial records (1,2).
For a startup, perhaps, the best available product is QuickBooks online that gives you excellent bookkeeping capability for as little as $150-200/year. Other accounting software is available, and may be worth considering for features specific to your company (3). Be careful to establish your chart of accounts carefully and in adequate detail as it underpins usable reports.
What information should be kept in a bookkeeping program?
- Transactions – These should be entered into the financial records and should include: expenses, invoices, deposits, payroll, and income with their transaction dates and details. From these entries, several key reports can be generated:
- Profit and loss – This report gives the story of what has happened to your company over the reporting period and terms of cash flow and changes to the balance sheet.
- Balance sheet – This report gives you a snapshot of the status of your company based on the changes from the prior report and includes liabilities, equity, and assets. It should probably be kept in the cash method, vs. accrual method, for tax purposes. Check with your accountant. These reports are basic and any investor or potential buyer would want to see them.
- Cash flow – Shows gains and losses in cash over a specified time period.
- Financial projections – You should create financial projections for at least the balance sheet and profit and loss statements, with enough elapsed time to when you believe you will make a profit. Although these projections, for both the balance sheet and profit-and-loss statement may ultimately prove inaccurate they show a potential buyer that you have at least considered costs and when a profit might be realized. Be sure to have some basis for these projections as best as possible.
- Equity records – You should keep carefully investor related financial information. If you are seeking outside investment to develop your product then additional information needs to be kept.
- Equity software – Equity software or online versions are available that tracks investor monies and their related equity. These are numbers that you do not wish to confuse. From such a program you can generate the capitalization chart which shows each investor’s ownership in the company, the total stock distribution, the option pool and the total amount of stock available. When seeking new funding the potential institutional investors or sophisticated angels will ask for the cap chart. There are several available products online (such as eShare and Capshare) (4).
Thanks for visiting and please join us again next week as we continue to discuss money management for your new business.
- https://esharesinc.com/; https://www.capshare.com/
Disclaimer: This blog is meant as a general educational tool and not for advice for any specific startup or issue at any company. Dr. Stewart is an entrepreneur and advisor to ophthalmic start-ups for general development plans and goals. He is not trained specifically in any one area of development or in entrepreneurship. Specific development questions should be directed to appropriate experts in the field in question. In addition, Dr. Stewart assists start-ups in identifying sources of potential investment funding for companies. Dr. Stewart is not a financial advisor. This blog does not promise financial or professional success. Each potential entrepreneur should do their own research and gather information from multiple sources and use appropriate attorneys as well as financial and trade advisors to make informed decisions on their own product and company. Copyright © 2017 PRN Pharmaceutical Research Network, LLC. All rights reserved.