The 4 Biggest Accounting Mistakes Startups Do
Startups have different business models, but all of them are in a situation where budgets are tight. In other words, accounting turns into a very important element.
Hopefully these tips will help you take better business decisions, as the flow of income and expenses are something all entrepreneurs should worry about.
To keep your startups accounting updated and well-organized at all times is a hard job, and that’s why there’s a lot of mistakes young companies often do.
Use a professional accountant
The first mistake startups often do because due to lack of experience, is to not hire a professional accountant.
A startup must know, at all times, its liquidity; How much money it owes to its suppliers, and the bills that haven’t been collected yet. It must also know the average of days that the customers take to pay, and detect those customers who are slow payers.
Being helped by a person with deep accounting knowledge will allow you to know the condition of the income statement, showing how the business is performing.
Many startups don’t see the value a professional accountant can add to the business. Apart from the actual accounting, it’s a person who can help them to develop their business, offering some advice about tax benefits, incentives and about corporate constitutions, etc.
Apart from being helped by a professional accountant, startups can use invoicing programs to make many of their daily tasks easier and better. These tools will allow them to control their business activity.
Lack of income and expenses control
We often encounter startups that doesn’t have records of their income nor of their expenses.
As soon as you get your first paying users or clients you will have to save a copy of each operation made between you and the customer.
To make it easier, a good way to organize it, is to order it chronologically (monthly), or in alphabetical order by the clients name.
As you’re organizing the payments, it’s just as necessary to organize all the expenses. You should divide them into categories, for example: offices expenses, stock acquisitions, supplies, insurance, taxes, etc.
Small expenses become big expenses
When every penny counts it’s easy to not register the tiny expenses, they seem so small, and everything would look better if you just kept them off the balance sheet.
This is a big mistake because you’ll lose the the right to deduct taxes from these expenses.
This means that each team-member in the company needs to write down all their expenses, including the teeny-tiny ones.
Just as your grandma tells you to save your cents as a child; “because enough cents will in the end make a dollar”, it’s the same with companies. There’s a lot of small expenses, and as the team grows, all people accumulated small expenses becomes significant.
However, remember that personal expenses never should be mixed with business expenses. This is one of the biggest reasons why companies get an unpleasant visit from the tax authorities.
This might seem obvious to most of you, but working closely with startups and their accounting, remembering to pay taxes is a bigger issue than you might think.
Any business activity is subjected to taxes, and startups and entrepreneurs, just like any other business needs to present different types of fiscal statements to the tax authorities, like VAT, PIT, corporation tax, etc.
Remember, that as an entrepreneurs you can deduct money from your personal taxes, when you every three months have to present the different tax models mentioned above.
It is also recommended to save a copy of your tax declaration (ordered by chronological order, every 3 months and every year), as well as a registry of the taxes that you have paid and what tax authorities has paid you back.