What is accounting and why does my startup need it?
Most small businesses need to understand their own financial position primarily in terms of how much they can spend (whether now or in the near future) and how much money they’ll generate as a result. High-growth startup founders tend to think about their finances in much the same way: cash-on-hand is much more significant to the day-to-day reality of an early-stage company than revenue yet to be collected. What isn’t obvious to most first-time startup founders is that once they secure professional investment, the founder will be just one of a number of stakeholders in their company’s finances—and all the rest will expect the company’s financials to conform to professional accounting standards.
Why accrual-based accounting?
There are two choices for accounting methods: cash-based and accrual-based. Cash-based accounting records expenses and revenues at the time they are paid, which makes it very simple to establish how much cash the business has on hand, but makes no attempt to forecast how much cash the business owes or is owed. For that reason, it's favored by small businesses of the traditional kind, which tend to pay for bills as they happen or collect payment upon goods or services rendered.