The startup ecosystem in India has expanded significantly over the past few years. It is now the second-largest startup ecosystem in the world and grows by 15% yearly. India has consumed around $70 billion in the past half-decade, and it is expected to cross $150 billion at the end of 2025.

After reading this guide, you will clearly understand the importance of financial management in startups, including the challenges faced by startups, the basics of startup accounting, essential bookkeeping services for startups, and services provided by online CA services.

Importance of financial management

Financial management plays a significant role in identifying whether a company will succeed. In this fast-paced business world, following effective risk management strategies is essential. Many startups employ financial analysis tools to manage cash flow and identify financial issues. This helps ensure that the business can grow and remain competitive in the market.

Why proper accounting is crucial from day one:

Proper accounting for startups is very crucial. It helps track the company’s financial health and tell where the business stands in the market so that decisions can be made accordingly. Accounting also helps identify any financial issues early and ensures that the company complies with the laws.

Challenges faced by Indian startups in financial management:

Startup companies might face several challenges, including financial complications. Major of these challenges are:

Controlling the cash flow: Some startups struggle with cash flow management, usually in the early stages. If not managed, it can also endanger the company’s existence.

Forecasting financial results:

It’s sometimes difficult for companies to predict their financial success because they lack enough data and there is unpredictable demand from the market. If their forecasts are incorrect, it may result in misuse of resources and wrong decision-making.

Getting funds:

Getting funds is also one of the challenges startups face, as the competition is very high. Securing an investment requires a solid business strategy.

Compliance burden:

Startups also face compliance burdens sometimes, as compliance requirements can be onerous.

If companies don’t comply with the rules, they will face high penalties.

The Basics of Startup Accounting

Core financial processes every startup needs:

Every startup must follow the core financial processes to ensure smooth operations and growth.

Some of the financial processes that every startup must need are:

Budgeting and forecasting:

Accurate budgets and financial estimates help in resource allocation. The company must adjust its budgets routinely as industry trends change.

Controlling cash flow:

Maintaining the cash flow to run a successful business is also essential.

Reporting and analysis of financial data:

Timely financial reporting helps startups gain insight into their financial performance and identify market trends.

Entire cost control:

Maintaining and controlling expenses is crucial for increasing revenues and conserving money.

Financial dispersion:

Allocating capital thoughtfully is also necessary. By carefully selecting investments, companies can grow while reducing potential risks.

Difference between bookkeeping and accounting:

In bookkeeping, the companies keep track of daily financial transactions like sales and expenses, while in accounting, the data is analyzed and checked to determine whether the business is making profits and making decisions about investments.

Another difference between bookkeeping and accounting is that bookkeeping doesn’t show a business’s financial position, while accounting helps to show it clearly.

Regulatory compliance requirements for Indian startups:

Indian startups must comply with all the laws to avoid any penalty.

Goods and service tax (GST) compliance: the businesses must register for GST if their yearly turnover exceeds 100cr.

Startup period: A startup cannot remain for more than 10 years from its formation.

Income tax compliance: Businesses must file income tax returns (ITR), Goods and service tax (GST), etc., on time.

Separate or combined entity rule: Businesses that split up or merge with another business aren’t called startups.

Auditing of business: Businesses must always be prepared for an audit.

Common financial mistakes made by startups

There are some of the common mistakes that most of the startups usually make:

No constructive strategy: Sometimes, individuals don’t have any constructive strategy. To make the strategy efficient, the individual needs to identify the current trends of the market by talking to potential customers.

Ignoring the cash flow management: Some people fail to manage the in-out cash flows due to overlooking the importance of tracking cash flows.

No interaction with customers: Sometimes, business owners make decisions without taking their customers’ suggestions and knowing what they want.  According to the CBInsights research report, about 42% of startups fail because of this.

Misjudging startup costs: Some individuals start businesses without proper financial planning and figuring out how much money they need to operate the business smoothly before running out of money, and consequently, they fail to continue their operations smoothly.

Lack of financial expertise: If the founders are not expert enough, they fail to run the business smoothly due to bad decision-making.

Essential Bookkeeping Services for Startups

Daily financial record-keeping

Every startup must track its finances and maintain accurate and up-to-date financial records. By accurately recording daily transactions, founders can easily prepare and file their tax returns, GST, etc., without facing any penalties.

Transaction categorization

Transaction categorization is another bookkeeping service that organizes or categorizes a startup’s financial transactions into specific groups like salaries, utilities, etc. It helps simplify the process of tracking income and expenses.

Bank reconciliation

In Bank reconciliation, the startup’s and its bank’s financial records are compared and checked to see if they match. This helps to find any discrepancies in the financial record.

GST compliance and filing

In India, startups with a turnover of over 100cr must register for GST. A GST compliance and filing service ensures the proper calculation and management of GST and that startups file their GST on time to avoid penalties.

Managing accounts payable and receivable

Managing accounts payable and receivable is also a bookkeeping service that helps manage cash flows by keeping track of all the money one’s business owes to others, and the money customers owe the founder.

Why Does Your Startup Need Professional Accounting Services?

Risk mitigation and compliance

Startup accounting services should be professional. A professional startup accountant ensures the company complies with the rules and regulations. They also maintain detailed and up-to-date financial records, which help them avoid discrepancies.

Financial planning and analysis

Startup Accountants also provide insights into the company’s financial performance, help identify trends and risks that could occur in the future, and help the founders forecast revenue, budget, etc.

Investor readiness

Since investors need proper financial statements before investing in one’s business, accountants ensure the financial statements are well organized. Professional startup accounting services prepare the startup to meet these expectations. Moreover, these services also provide credibility and transparency.

Tax optimization strategies

Since startup accountants know all the rules and regulations, they help startups leverage tax benefits, like deductions or exemptions under Indian tax laws. So startups don’t have to pay extra. Moreover, they ensure tax filings are done on time to avoid penalties.

Resource allocation and budgeting

Accountants also help in resource allocation efficiently. In this way, startups don’t overpay mistakenly.

Choosing the Right Financial Partner

Startups need to choose the right financial partner, as this impacts all the other factors, such as financial management and compliance.

Traditional vs. online chartered accountant services

Traditional chartered accountants (CAs) vs. online chartered accountants:

Traditional chartered accountant:  A chartered accountant executes specific accounting procedures. A traditional charted accountant works through face-to-face interactions

Online chartered accountant: An online chartered accountant provides services through digital platforms.

Difference between their services:

Service delivery: Traditional chartered accountants usually have physical offices where their clients can visit. On the other hand, for online chartered accountants, clients can upload their financial data online and get assistance.

Bookkeeping: Traditional chartered accountants do manual bookkeeping, while online chartered accountants do automated or cloud-based bookkeeping.

Cost structure: Traditional chartered accountants usually charge a higher fee for personal interaction, while online chartered accountants charge a comparatively lower fee.

Benefits of working with a startup-focused accountant

There are many benefits of working with a startup-focused accountant:

Industry-specific expertise:

Startup-focused accountants know about the challenges a new business faces, such as cash flow, regulatory requirements, compliance issues, etc., and can help the company overcome all these problems.

Expert Financial advice: These accountants are experts, so they can give customized financial advice that aligns with the company’s current needs. The companies can follow those growth and cost management strategies, which helps them make the right decisions.

Tax exemption opportunities: As the accountants know the laws and regulations well, the company may have tax-saving opportunities under the law. This may result in significant cost savings.

Resource allocation: A startup accountant can make accurate budgets and financial estimates, which consequently helps with resource allocation. The company must adjust its budgets routinely as industry trends change.

Vast network: Startup-focused accountants also have connections with an extensive network of investors. More investors will be attracted to the company if the accountant is credible.

Cost considerations and ROI: Founders should understand the cost structure and return on investment (ROI) before choosing a financial partner.

Assessing the money: The founder needs to evaluate how much they get. Even if the cost of the accountant’s services is higher, the benefit would be even better if the accountant gives good advice and tells efficient strategies.

Return on investment: It is also essential for the founder to evaluate the return on investment (ROI) while choosing a financial partner and consider whether the financial partner can support the startup’s growth.

Cost structure: Traditional chartered accountants charge a higher fee for personal interaction, while online chartered accountants charge a comparatively lower fee and offer a subscription-based price.

Hidden costs: Traditional chartered accountants might charge extra for specialized services like auditing, tax planning, etc. Moreover, online chartered accounts may also have hidden fees for premium features.

Why Finocircle is your preferred choice as an online chartered accountant?

 Finocircle is a company that provides expert compliance and accounting services. Individuals can get help from Finocircle and set up a smooth business that complies with the legal requirements. It can be used as an online chartered accountant because of its wide range of services, e.g., Goods and service tax (GST) and filing, accounting, financial advisory service, and bookkeeping.

Meeting the Legal requirements: Finocircle’s expert team understands the legal requirements related to the accounting and finance of a startup company, so it can help the individual avoid any penalties. Moreover, the Finocircle team also provides expert guidance according to the company’s needs at affordable prices.

Time saving: Another advantage of Finocircle’s services is that individuals can save time.

Cost-effective: Finocircle services are also affordable, and new companies can use them without spending much money.

Services Offered by Finocircle for Startup Accounting

Company registration and compliance Services

Finocircle helps register a company under a legal structure and ensures that the company complies with government laws. We specialize in offering affordable and expert startup registrations services.

Tax planning and filing

Finocircle experts know the laws and regulations well, so the company may have tax-saving opportunities under the law, which could result in significant cost savings.

Financial statements preparation

Finocircle helps the company make accurate financial and cash flow statements with our accounting and bookkeeping services. Moreover, the assistants at Finocircle are experts so that they can prepare the financial documents on time, and that’s why the chances of any error or delay are negligible.

Funding assistance and valuation

Finocircle helps prepare financial models representing detailed information about a company’s financial activities, consequently attracting investors.

CFO services

Finocircle also provides a virtual chief financial officer (CFO), which helps manage the company’s finances and helps in planning and tracking financial data, etc., so there is no need to hire a full-time chief financial officer (CFO) now. It benefits startup companies as they don’t have to spend large amounts of money.

Conclusion

Financial management is essential for every startup company. Most companies have to face some challenges in the initial stages. To overcome these challenges, the founder needs to have basic accounting knowledge, or they might hire a typical chartered accountant for their company. But suppose a startup company doesn’t want to overspend in its initial stages. In that case, it can also go for an online chartered accountant like Finocircle, which is a company that provides expert compliance and accounting services. Individuals can get help from Finocircle and set up a smooth business that complies with the legal requirements. In this advanced era of competitiveness, having a unique business startup idea and proper financial management is very important. If the individual successfully manages the company’s finances appropriately, the company can succeed quickly.