5 ACCOUNTING CHALLENGES STARTUPS

DIGITAL MEDIA MARKETING | MB Enterprises

Accounting challenges are the most common ones that comes up in new businesses and fixing them up can be a big financial issue. At the same time when starting a business solid accounting practices are a necessity to have success initially.

Accounting and bookkeeping holds paramount importance in the initial phases of a business. As a business is in the early days, accounting analysis, ratio analysis and recording of all activities regards to the business is a must. This is all because of the investment in business that requires a ROI i.e. a Return on Investment.

A ‘ROI’ or Return on Investment is the Return you are getting on the initial investments that you have incurred on the business. As businesses demands huge Returns to get established, it is necessary to get hold of the ROI or Returns on Investments in a fully functional way. However, as we discuss the issues and challenges when starting a new business. Here are some of them;

1. Maintaining a Healthy Cash Flow 2. Keeping track of financial information 3. Bringing in enough capital 4. Handling Payroll 5. Paying The Taxes

Maintaining a healthy cash flow and with consistency is a litmus test of a new startup. Cash flow in accounting terminologies means the Net Flow of cash at the end of the month. Hence, in more financial terms a Cash flow is an important financial metrics that determines the liquidity of a company. A positive cash flow is an indication that a company’s liquid assets are increasing, enabling it for debt settlements. Cash flows in a company’s financial statements are listed in three sections detailing activities. The three sections are cash flow from operating activities, investing activities, and financing activities.

Maintaining a positive cash flow can be a huge challenge for fresh companies and new startups. The new companies’ usually avoid the cash flow problems by staying on top of their finances, maximizing their revenues and finally minimizing the expenses. The best way is to minimize the expenses and risks associated to business initially. This can be strategically achieved by reducing the costs payments and lowering the cost of inventory.

While running a small business and a new startup one can easily miss keeping track of financial information. As an owner or a CEO of the enterprise keeping track of the financial information is a risk assessment exercise. It always allows to optimize the cash flow, pay the taxes on time, success evaluations of the business and its standings, and attracting new investors through profitability. All these activities are important to be successful and reductions in initial phase accounting challenges.

Enough capital means enough investments and making yourself secure for future investment options. A new investment obviously demands big initial capital investments, however, at the same time there should be a proper risk analysis to make goals sustainable. Most businesses accomplish these tasks by getting hold of or acquiring the investors. You have to convince the investors that their investments are risk free and they will not be incurring losses.

As an owner of the business you have to be very determined, focused and must have a solid business plan. These must be clear, having concise financial records and identifying potential investors.

Payroll, a key function in accounting and financial management for keeping track activity of employee payment records. In a startup business handling payrolls can be a huge challenge as initial profitability is something that doesn’t comes that easy. The payroll is an unavoidable task and it needs to be accurate. Important as well, because getting the trust of employees is immensely crucial for a startup business.

In what cases it can be a challenge, that’s the question? It can be a significant challenge when startups don’t have the ability of handling tasks in-house and there can be some major calculation errors. Thus, in that case, the best solution of outsourcing the payroll activities. Something that can be cost consuming, however, but still holds positive impacts on the company profiling.

Last, but never the least is paying the taxes on time. Almost all businesses have to file and pay taxes. It can be a huge accounting challenge to understand the taxation system initially. For that particular purpose, the owner of the startup business should have a dedicated accountant or must understand the tax system themselves.

Filing tax returns, maintaining offline and online records and interacting with consistency with the tax department is important to overcome the accounting challenges. The challenges that are associated with the ‘fresh nature’ of the business, can easily be overcome through adequate tax knowledge. A good solution is to outsource taxing services and hire a tax consultant to overcome the challenges faced because of the taxes.