A Detailed Guide to Accounting and Bookkeeping for Start-up Founders in Singapore

Seth Godin once said, “The only thing worse than starting something and failing is not starting something.” In Singapore, many start-up founders successfully begin their business operations but along the way, they get discouraged. One of the most challenging aspects in their businesses is usually accounting and bookkeeping. Only a handful of founders have the knack, courage, and determination to implement effective accounting and bookkeeping practices to scale their businesses to the next level. If you are a founder of an up-and-coming start-up in Singapore, this article will guide you through key aspects of accounting and bookkeeping that you need to know.

Bookkeeping vs. Accounting: How Do They Relate?

Generally, both accounting and bookkeeping are associated with numbers, but they are quite different to some extent. The term ‘bookkeeping’ was coined before ‘accounting’ when business owners used paper books to track their finances. Bookkeeping refers to the administrative process of recording financial records, especially income and expenses related to your day-to-day start-up operations. Typically, bookkeeping deals with:

• Invoicing
• Payroll
• Receipts and bills
• Recording daily transactions of your start-up

On the other hand, accounting refers to the detailed process of interpreting and presenting all your financial records, which play a key role in making strategic business decisions as dictated by the numbers. Typically, accounting deals with:

• Budgets
• Tax returns
• Financial statements and reports
• Evaluating the performance of your start-up

While all the above bookkeeping and accounting tasks overlap, they play a key role in the success of your start-up as long as you can consistently keep good financial records from the onset. Both can help you monitor your cash inflow and outflow, which is key in attracting potential investors and making key strategic business decisions.

What Financial Records Should Your Start-up Prioritize?

As a start-up founder in Singapore, avoid comparing the financial records of your business with those of established businesses. Since your business is still at the infancy stage, you should identify the most essential types of financial records to keep track of. As a rule of thumb, it is advisable to keep track of financial records that revolve around your income, expenses, deductions, and tax credits. The most important ones include but not limited to:

• Bills
• Bank and credit card statements
• Cancelled checks
• Invoices
• Proof of payments
• Receipts
• Forms IR8A
• Previous tax returns
• Financial statements from your accountant/ bookkeeper

It is also advisable to cling on to most of the abovementioned financial records for at least three year. However, feel free to keep them for longer depending on the nature of your business.

Accounting and Bookkeeping Essentials for Your Start-Up

Since bookkeeping involves the administrative process of recording incomes and expenses for your day-to-day start-up operations, and accounting is the detailed process of interpreting and presenting all your financial records, you need to avoid updating your books when the deadlines are too close whether it is tax filing or when a new investor comes along. Below is a checklist of weekly and monthly accounting and bookkeeping tasks that will keep your books updated without a hassle:

Weekly Tasks

• Categorise All Transactions

This is where an accounting and bookkeeping software comes in handy, or you can use an excel spreadsheet. For easy reference and retrieval, categorize your transactions appropriately: money you receive belong to the income or revenue category; money you spend belong to the expense category. It is advisable to identify and assign different transactions when they are still fresh in your mind.

• Digitize All Receipts

Since the modern-day business world is going paperless, also prioritise digitizing your physical receipts on a weekly basis even if they are neatly and securely filed in your cabinet. This goes a long way in avoiding situations where you cannot verify some transactions, especially during audit processes. Monthly Tasks

• Reconcile All Business Bank Accounts

If you do not want any income or expenses slipping through your fingers, it is important that you reconcile your bank accounts periodically, preferably every month. Once you get into the habit, you’ll effortlessly track cash flow, detect bank errors, monitor account receivables, and safeguard your start-up against fraud.

• Prepare and Send Out Invoices

Did you know that 29% of start-ups fail because they run out of cash? To get paid, you need to plan how to invoice your customers. Effective invoicing can boost the cash flow of your start-up so we recommend that you prepare and send them on a monthly basis unless you have special arrangements with specific customers. Your invoices should include the following information:

• Legal name of your start-up
• Your start-up’s physical address and contact information (phone, email, etc.)
• Customer name and address
• Invoice number
• Invoice date + due date
• Payment terms

In the course of the month, make a schedule to follow up on customers who are yet to honour their invoices. Your cash flow depends on a smooth accounts receivable process.

• Pay Your Bills Beforehand

As a start-up founder, you need to understand that depending on the nature of your business, you’re more likely attract more bills than revenue in the first few months or even years of operation. During this period, paying your bills late could negatively affect your cash flow and business credit score. To avoid such overly damaging mishaps, find a way of paying your bills at the beginning of every month even before you make a dime. To raise money to cover your bills, you can:

• Take part-time job
• Run a separate business
• Provide consultation services
• Borrow from your retirement savings
• Exchange an investment for an equity share in your start-up

Once you start ignoring your bills, you not only run the risk of paying extra for late payments, but your start-up will be out of business in the long run.

• Conduct a Thorough Review of your Financial Position

Every month, one of the most important questions to ask yourself as a start-up founder is, “Does my business have enough money to keep my operations going now and in the near future?” It is crucial to review your coffers in order to have a clear picture of the exact figures of cash in hand, cash at bank, and how much cash you are expecting. Start making drastic changes once you realise that your financial position is not looking good now or in the near future. This means that you must have in-depth knowledge of your financial books, which goes a long way in making informed financial decisions for your start-up’s survival.

Key Takeaways

• Bookkeeping is the administrative process of recording income and expenses for your day-to-day start-up operations
• Accounting is the detailed process of interpreting and presenting all your financial records
• Start-up founders should prioritise keeping track of their income, expenses, deductions, and tax credits.
• Start-up founders should pay their bills at the beginning of every month even before you making a dime.
• Effective invoicing can boost the cash flow of start-ups

Looking for a dedicated accounting firm for your start-up or SME in Singapore? Choose Tianlong Services. Our expert accountants can provide you with the best service possible, while minimizing your accounting problems and maximizing your profits.