It is not easy to start a new business, we all know that. It requires a lot of dedicated efforts and hard work to keep the business going with a smooth flow. One of the major concerns when running a business is to manage the financial and accounting issues related to it.
Accounting is one of the most crucial areas of any business. Especially startups must take care of this area in detail. Every business needs to hire a CA who can handle all the financial activities of the companies, and can take care of financial matters, frauds or errors. They also might need a good accounting software to run their business smoothly.
Besides having a CA, owning some knowledge about financial technicalities is important for the company authorities. It will help you in handling any kind of financial fraud or issue going in the company. In order to maintain the flow of the business without any problem, the business management should make it a necessary point to file TDS, service tax, and returns etc.
Many startup failures have been witnessed in the past because they failed to manage the financial complications of their business. Thus, to avoid such failures, the businesses must take care of their accounting matters by utilizing best possible approach.
Here are some of the common accounting issues the startups face:
1. Method of Accounting: Some Startups fail to track the fundamental accounting details, e.g. expenditures and transactions. They simply start considering outgoing transactions as expenses, and generated income as profit.
But is it the case?
There are many resources, which adds to extra cost and goes unnoticed. It results in an imbalance of expenses, savings and earning records.
To prevent that, the businesses must make sure that they calculate the right amount of money spent, exhausted and generated. Careful calculation and more importantly, accounting knowledge is necessary to successfully run a startup.
2. Correct Documentation: Another common mistake that many new businesses do is – not maintaining the proper documents for the financial transactions. The irregular, incomplete or unsynchronized updates in the financial documents are generally due to lack of attention of these important liabilities. Later, it causes mishaps for the startup owners, dragging them to financial or legal disputes. So, the accounting team must make sure that they maintain the proper records of the financial transactions.
3. Mixing of the account: Startups generally use personal accounts of the owners in the beginning. It take times in shifting from personal to business accounts. But, mixing the personal and professional transactions altogether is actually an issue. For the same cause, the personal account of any of the business’s employee must not be mixed with the professional account of the company. Both the accounts must be kept separate so that the exact situation of the business’s profit or loss can be found.
If the two accounts are mixed, it will only harm the financial side of the business as the personal expenses will be calculated in the professional account of the business, which will automatically create trouble to manage the account of the business.
4. Considering Loan as share capital: Loans received by the newly-found business should not be considered as the shared capital. Making the right use of that money is important. So, make sure that you are keeping it for paying back. Do not mix it with any other form of assets or liabilities. Many startups fail due to their less or no understanding about the share capital and loan. Due to which, they can’t differentiate which one is to be used in business transactions and when.
5. Understanding the expenses of the business: Every new business has multiple expenses to deal with. As these things are new for the entrepreneurs, it may disturb many things.
For a smooth flow of the business, it is necessary to understand each and every expense clearly and in detail. The startup, therefore, must keep a track of all their expense. Consultancy fees, legal charges, printing fees, fees for registration of the business are some of the major expenses to take care of.
6. Submission of the taxes: The startups must never play with the taxes or delaying in paying them. They must always pay their taxes on time and in the exact amount. If any business fails to pay the tax, there are high chances that concerned people will land in some financial trouble. The business must timely file all the TDS, returns, etc. for which they are accountable. It will avoid any type of future problems.
7. Hiring the CA: Hiring a CA is the basis need of any startup. But be careful while hiring someone for this job. Before you hire any CA, make sure that the experience and knowledge of the CA are checked thoroughly. This will help the business to withstand any legal or financial trouble that occurs in the future. Also, an experienced CA will never let the business fall under any such condition where the business has to face any financial loss.
8. Having the basic knowledge: Besides having the CA, the business management should also have some basic knowledge about the financial necessities. It will help them in keeping an eye on any ongoing financial fraud or error in the business. If you have some knowledge of accounting, it will be easy for you to figure out if you CA is cheating on you or making any mistake or not. It not only saves you from the troubles but also ensure the peace of mind.
Accounting is an important part to consider when your startup has just started growing. Small mistakes may have big and bad consequences. At the end, it may harm your business only. Sometimes, it may cause the shutting down of the business, which isn’t yet started properly. Obviously, you do not want that. So, never neglect the accounting issues, even if they are minor. After all, you want growth and that in a fast and secure way – without getting into the legal troubles.