Sunday, 26 May 2013

3 Reasons Startups Should Do Accounting

The 25th of October 2008 was a Saturday. I paid a reporter $25 to do a press release about my little software company started just a few months earlier and desperately in need of some media love.

The 25th of November 2008 was a Tuesday. I loaned my mother $6 which she paid back on the same day. I also loaned my father $12 which he paid back the next day. Finally I bought $34 worth of phone airtime for some guy called Tom. 

I have a record of every dollar I’ve spent on the 25th of every month for the past five years. It sits in an Excel file less than 1MB in size and is the ultimate secret weapon for growing my business. 

My name is Eric Mutta, I have been writing code for 15 years. I live and work in Dar-es-salaam, Tanzania, soon to be the hottest tech scene in Africa. In this article I will share some reasons why startups should do accounting.

Simply put, accounting is about keeping records – it is not a qualification (even though you can take courses), or something relevant only to big companies. Three reasons why you should keep financial records for your startup: 

1.     Know your past. Having records that you can look at really helps you see how far you have come. Running a startup feels like an endless near-death experience. The records usually show it is rarely as bad as it actually feels and can help you stay motivated.

2.     Know your future. The five years of data I have accumulated in my Expenses Excel sheet helps me answer pretty much any question an investor will have about my business finances. Questions such as how much money do you need, what will you use it for, and how long will it last can all be answered in seconds by creating a pivot table and plotting some charts. 

3.     Do better each month. Someone once said that you cannot improve what you do not measure. Keeping financial records for your startup helps you measure your performance. Spending too much on that internet connection? You won’t know unless you keep records and you can’t take corrective action unless you know about the problem. For programmers out there, financial records are a business debugging tool.

My company, Problem Solved Ltd, makes a user-friendly accounting package for startups, called Minishop. If you are still fighting the good fight and developing your product, just use Excel. A sheet with columns for Date, Amount and Description will be adequate for years. Once you start getting revenues or seeking finance, you’ll hear talk about Income Statements and Balance Sheets. Minishop will be waiting!
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