Financial best practices for web3 businesses
Web3 businesses don't operate under the same financial systems as 'ordinary' business. You'll usually have requirements to maintain records of digital assets, as well as converting onchain data values into local currency for reporting.
Based on the web3 businesses that we work with, here are our suggestions for financial best practice:
To ensure accurate financial reporting and so that digital assets can be correctly tracked, it is important for a web3 business to establish a strong accounting system. This system should consist of a bespoke chart of accounts, accounting policies, and transaction recording procedures. Additionally, it should be equipped to handle the complexities of digital assets, including smart contracts and crypto wallets.
Ensure compliance with tax regulations: Web3 businesses should ensure compliance with tax regulations in the jurisdictions where they operate. This includes understanding the tax implications of digital assets and staying up-to-date on the evolving regulatory landscape.
Effective cash flow management is crucial for any business, and particularly for a web3 business that operates in a rapidly changing environment. It is essential for a web3 business to regularly monitor its cash flow and prepare for unforeseen circumstances to ensure it has the necessary resources to operate and expand. In particular, this can be a requirement to monitor the movement in values of digital assets to ensure that overall treasury isn't being devalued.
Implement strong internal controls for handling your onchain assets. We'd recommend https://safe.global/ for this!
Work with experienced advisors: Web3 businesses should work with experienced advisors who understand the unique accounting and financial challenges of the web3 space. This includes accountants, tax professionals, and legal advisors who can provide tailored advice and guidance.
By implementing these best practices, a web3 business can ensure accurate financial reporting, tax compliance, and effective cash flow management, which are critical for success in the web3 space.
