So you have started a company which was one thing you wanted to do passionately for a long long time. After painstakingly researching about setting up a company, planning the core functions, and forming a dependable team, you are set to go all out into the entrepreneurship world. Wait, you are not done there. The above-mentioned actions are not enough to thrive in today’s fast-paced Startup environment. But, have you stopped to think you would require accounting services to ensure your startup’s success?
To make your startup a success, you need much more than a brilliant product or a service. Now, I am not here to tell you the success mantra for a Startup, so let’s concentrate on how to make sure that your Startup is not heading towards its doom.
According to CB Insights, one of the prominent reasons for a Startup’s failure is running out of cash and it contributes to 29%. Now, running out of cash does not mean not being able to raise enough funding or exhausting cash reserves alone. One of the most important reason is not maintaining and tracking a proper cash flow. This is because a very small percentage of Startups have a Chief Financial Officer (CFO), who handles the company’s financial aspects.
Most of the Startups are built by Engineers who have a brilliant idea for a product but, little to no knowledge about handling money and other accounting related works. So, they do it themselves which eventually leads to a cash crunch and other unwanted challenges. Below I have listed 7 common pain points of accounting for a Startup company and how opting for accounting services can make your life easier.
Not knowing where the money is going
Are you stressed about your profitability, debt, and sales or finding it hard to keep your calculations accurate? Have you ever wondered where your company’s money is going? If the answer to the above-mentioned questions is ‘Yes’, then you really are having a hard time running the financial part of your company.
This happens when Bookkeeping is not maintained regularly and accurately. Any company, big or small, should maintain daily cash transactions, bank statements and allocating account entries, recording monthly and annual closings and other general company information pertaining to the cash flow. By doing this you not only know the whereabouts of the money but, you can also maintain a distinguished record of the company’s cash flow.
Not knowing how to do or having a plan
Like I said earlier, most of the Startups are founded by Engineers and more often than not, they do not have the required knowledge to handle their company’s Accounting needs. Knowledge about accounting is not a prerequisite to starting a company. However, you will eventually have to learn about it or find someone who can help you with it.
Few Startups get along with accounting by various fixes and hacks here and there. However, they are temporary fixes. The permanent solution to this would be to maintain an accounting team (If you can afford) or opt for accounting services by externalizing the responsibilities.
Not having the time to concentrate on both core activities and back office works
When a company is started, the founders and the team submerge themselves into forming an identity for the company and developing the business. In this process, they fail to foresee the cost of setting aside one of the most crucial activity. Even though they know the importance of accounting for a company, they do not have the time to concentrate more on it. Some Startups try to juggle between their core and back office works but, let’s face it they are never going to get their accounting right this way. Accounting is one chaotic part of a startup or any company, which demands our 100% concentration and time to get it right.
Not having enough resources and funds
When you are a startup consisting of a handful of people and still working on generating revenue, maintaining an in-house accounting team will be rather costly and unnecessary. Many Startups, even when they are steadily growing do not find the need to hire an accounting team. They do their accounting themselves or contract out to a reliable firm. By contracting out your Startup’s accounting, you can improve your finances and overcome challenges like improper management and lack of knowledge in such domains. This would also save you the trouble of purchasing expensive accounting software and tools.
Not knowing your Business’s cash flow health
They say ‘cash is king’, well I like to believe that ‘cash flow is king.’ And not understanding cash flow properly will bring your business to the ground. Thousands of brilliant Startups have failed because they did not have enough cash which was a result of not taking cash flow seriously. During the initial stages of making a brand of your startup, the outflow is always more than the inflow. This needs to be understood and a plan has to be made in order to reverse it.
Achieving positive cash flow, avoiding negative cash flow, creating break even, and measuring the cash requirement are all such critical cash flow activities and requires to be done by a professional.
Not keeping up with the ever-changing technology and tools
Technology sure has quickened the pace of yielding results and simplifying processes. Nowadays many accounting software have come up in the market to reduce our effort and save some valuable time. However, it is of no use if you are not aware of how and when to choose the right software combination for accounting and tax purposes. Choosing and knowing how to use the right software not only reduces the overall time and effort but also increases accuracy.
One downside to this is the software packages are expensive and requires knowledgeable professionals to work on it. An alternative to this would be to take assistance from a firm which has access to licensed software and Certified Public Accountants.
Not passionate enough to do accounting related work
Let’s face it, accounting work is not really that exciting unless you are truly passionate about it. If you are forced to do such works for lack of a better option, it would naturally result in errors and miscalculations. Instead of investing your time into something which you are not overtly fond of, it will be beneficial to spend your time on the core activities and grow your business.
Whatever might be the pain point, for a Startup it is always advantageous to opt for accounting services and concentrate more on developing your business. Leave your finance and accounting responsibilities to people whose only business is to handle the chaos of accountancy and are truly passionate about accounting and everything related to it.
If you found this article helpful, then you might also find our article on how to make your startup financially successful a worthy read.