Bookkeeping 101: 7 Fundamentals Every Startup Owner Should Know

Starting a business can open up exciting opportunities for bringing ideas to life and growing something that reflects one’s vision. However, new ventures often come with challenges. In particular, managing finances is one of the more difficult aspects for new entrepreneurs. That’s because new business owners must juggle various financial responsibilities, like budgeting, tracking expenses, and ensuring compliance with tax regulations, all while focusing on core business activities. Many startup owners also don’t have prior experience or a solid system in place, so they may find the complexity of financial management overwhelming.

This makes understanding the fundamentals of money management critical for new business owners. One of these foundational aspects is effective bookkeeping, which helps you track income, manage expenses, and ensure compliance with tax regulations—all of which are crucial to running a successful business.

As a small startup business owner, practicing diligent bookkeeping from the beginning sets the stage for long-term growth. To that end, here are the essential bookkeeping fundamentals you need to familiarize yourself with:

1. Record All Transactions

One of the most essential tasks of bookkeeping you need to practice is recording every financial transaction. When you document every peso that comes in and goes out, you get a clear and detailed picture of the company’s financial health. Thus, you can make informed decisions about budgeting, investing, and managing day-to-day operations. Additionally, regular transaction recording allows startups to quickly identify trends, such as rising expenses or seasonal fluctuations in revenue. 

If you don’t record transactions, it can lead to financial discrepancies that make it difficult to gauge profitability or track cash flow. This can also create issues when filing taxes, as incomplete records could result in underreporting income or overstating expenses—both of which may lead to penalties.

2. Implement a Payroll System

Even if you only have a handful of employees in your startup business, having an organized payroll system is crucial for ensuring that employee compensation is managed accurately and efficiently. You can also find that a well-structured payroll system Philippines’ businesses rely on can help you avoid errors in calculating wages and taxes. As a result, you can maintain employee satisfaction and avoid costly penalties. Additionally, managing payroll effectively prevents overpayments or delays that could strain your finances.

3. Open a Separate Business Bank Account

It’s also important for startups to keep personal and business finances distinct to avoid confusion and ensure proper tracking of all business-related transactions. With a dedicated business account, you establish professionalism and make bookkeeping much easier.

In the Philippines, opening a business account requires documents such as your business registration, valid IDs, and proof of address. Once you have these documents ready, open a business bank account as soon as possible.

4. Always File Taxes on Time 

Another critical part of running a business is complying with tax regulations. As a startup owner in the Philippines, you need to be familiar with the requirements set by the Bureau of Internal Revenue (BIR), including registration, VAT filing, and income tax returns. You must also maintain detailed financial records and file taxes on time to ensure compliance with Philippine tax laws. This practice also helps avoid penalties and interest charges that can accumulate from late payments. 

5. Set Aside Funds for Tax Purposes

Many startup owners overlook the importance of setting aside funds for taxes. That is, until they experience cash flow problems when it’s time to pay their dues. That’s why it’s a good practice to set aside a portion of your revenue each month specifically for tax purposes. This approach ensures that when tax season arrives, your business isn’t caught off guard by a large payment and you can settle your taxes without dipping into operational funds.

6. Be Mindful of Receivables

Many startups struggle with cash flow because they don’t closely monitor their receivables. Delays in collecting payments can create significant financial strain, especially for businesses with tight margins. So, don’t make the mistake of overlooking receivables. Always keep an eye on outstanding payments and set up systems to ensure that clients pay on time.

Some simple yet effective strategies for preventing overdue receivables include sending regular reminders to clients and offering incentives for early payments to customers.

7. Manage Business Expenses Well

It’s also essential to keep track of business expenses for accurate financial reporting. With a well-kept record of expenses, you can identify areas where you might be overspending and make adjustments to optimize your business’s financial health. Make sure to categorize expenses appropriately, too, and keep receipts or other documentation on hand in case of audits or reviews. 

Startup owners who have a solid understanding of bookkeeping establish a strong financial foundation. It can also pave the way for effective bookkeeping practices, which are essential for the long-term success of any startup. So whether you choose to handle bookkeeping yourself or plan to have a dedicated professional take care of your financial records, these fundamentals will help you stay on top of your business’s finances and focus on growth.