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© 2016 Small Business California

Tracey Clayton
Aug 16, 2018

The Top 5 Accounting Issues of Startups

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Creating a startup is much more difficult than it might seem. Having an idea of what you want the business to be, even having enough funds and a great team are just the beginning. Running the day to day operations of such a business will require you to get familiarized with issues you never thought about.

Accounting is one of these obscure subjects that seem byzantine to outsiders, but can make or break a business and should be one of the main focuses of a young startup company.

 

 

The complexity

Cutting down on expenses is an obvious priority for a small business. There’s a lot of competition out there and startups tend to do a lot of the work (such as PR and customer support) in-house. Some tend to do the same with taxes and it quickly becomes an apparent mistake. Accounting should be left to professionals who understand the process.

A lot of new business owners tend to believe that it’s all about calculating the expenses and the income and dividing what you owe into installments. However, the tax code is always changing, especially for those working abroad.

 

Payrolls

Startups usually start as an idea, conceived and executed by a group of friends in someone’s apartment. At that stage everything is easy, but once there are employees involved, the accounting gets tricky.

There are numerous additional costs beyond paychecks that the company needs to deal with and it can be overwhelming for a small startup. You also need to pay taxes, health care, and a portion of the retirement funds. There are software solutions to make this process easier, but the costs still add up.

 

Collecting payments

The cash flow is far more important than the savings your business might have. It’s the cash flow that’s used to fund day to day activities. Every business owner soon realizes that it can be quite difficult to keep track of its moneys owed.. That’s why you need to set up a system for recurring payments to automate the billing process.

Keeping track of all the due payments and providing a steady cash flow is one the most important accounting tasks out there. It allows you to plan for the future and make medium-term and long-term decisions.

 

 

Going beyond accounting

A lot of companies are starting to think about accountants in a broader and more complex sense. Their job allows them to understand every nook and cranny of the company. This is a very useful position to hold because it creates a unique perspective that could be used for advisory purposes.

Startups that are starting from the ground floor should find such an accountant within the first year. That way they can gradually grow into the advisory role that comes with accounting.

 

Finding the right accountant

In the end, accounting issues are also staffing issues. It isn’t easy for a small company to get the best employees because they are most likely attracted by large salaries and bonuses and startups can’t always afford that. If you’re using the services of an outside accounting company, you need to find someone who’s familiar with your industry.

Have in mind that this decision will also affect how your business is perceived by the investors. A good accounting team could draw in new investors because it sends a message about your financial future.

 

These issues are what worry startups the most when it comes to accounting. Accounting is something that affects all aspects of the work, which means that these concerns are in a way about the future of the company itself.

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