Blogs

Author: Ravneet Singh
Published On:November 16,2017

Small Accounting Problems Killing the Startups 

It’s not your fault. And you’re not alone. When you start your own startup, you don’t put debits and credits at the top of your priorities. After all, keeping your records organized is not your passion or your strong suit. Nonetheless, ignoring management reporting leads to accounting problems that take you away from that passion, away from doing what matters most to you.

Despite knowing the existing issues, many startup founders don’t address them. Why?

“I don’t have the time.”

“I don’t know how.”

“There are too many other fires to put out.”

“A professional is too expensive.”

 “I planned to hire someone to take care of it, but I just haven’t gotten around to it yet.”

Rest assured: The most common issues have solutions. You just need to know what they are and how to go about dealing with them.

What Accounting Problems Does Your Startup Face?

While these are not the only problems your startup could be facing, these are some of the most common challenges.

·         Accounts receivable outruns sales and the ability to collect payments

·         Inefficient accounting software

·         Inadequate internal systems and procedures

·         Managing overhead costs

·         Closing the books accurately and timely

·         Managing payroll

·         Tracking stock option grants and other issuances 

Do you recognize challenges with these areas in your Startup? If so, they could have a bigger impact on your profitability and growth than you realize.

 How Do These Issues Impact Growing Startup?

Whether the money comes in via bootstrapping or investors, managing it efficiently and in tandem with the projected growth rate of the company is a huge task in itself.

As your startup grows, it becomes harder and harder for you, as the founder, to keep track of the startup’s accounting functions. You have other responsibilities to focus on, like pursuing your vision for the startup.

Let’s exemplify the notion with the case study of Food Panda. Live Mint reported back in September 2015 about the scandal that is crippling the company’s finances. The prevalence of fake orders and restaurants in the books, coupled with the lack of automation in records and excessive use of excel sheets (prone to unsanctioned edits) to capture transactions have left the company devoid of crores of rupees in revenue.

In times of sharp growth, accounts receivable increases quickly, and without the ability to collect efficiently, this impacts your cash flow. You may have invested in basic accounting software when your startup first started, but it is likely that software is not enough to meet your growing needs. However, it costs you time and money to integrate more sophisticated software, functions and resources into your business operations. And, without a reliable accounting and finance function, you have no dependable resource(s) to lean on.

When your startup does not have the tools and resources needed to support your accounting operations, you will impede your ability to effectively managing your business’ funds. 

How Do You Solve These Problems?

There will always be accounting challenges as you grow. If your accounting operations are facing these problem or similar ones that impede growth, you need to take action to fix looming issues.

An increasingly popular trend for emerging startups is to consider outsourcing some or all your accounting services. This model allows for scalability and cost effectiveness in that you pay for the exact services and resources you need, when you need them.   You can outsource the work, but you need to know what is going on if you are going to drive success. The right partner will be successful at managing your finance and accounting functions while ensuring you, as the leader of the business, fully understand where your finances stand.

If you’re looking for support, you need someone who actually addresses your startup needs. With that help, you should be focusing on the foundation of your startup and what you do best. A true startup advisor should also be capable of communicating the financial status of your startup in a way that makes sense to you. Your job is to get to know potential partners and fully understand what the nature of that partnership will be.

There is a difference from partner to partner, so it’s important to choose wisely.