Accounting challenges are the most common ones that come up in new startups. Therefore, 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. Some examples include Payroll, taxation, and bookkeeping.
Accounting and bookkeeping hold paramount importance in the initial phases of a business. As business is in their early days. Therefore, accounting analysis, ratio analysis, and recording of all activities regard to the businesses are a must. This is all because of the investment in the business that requires an ROI i.e. a Return on Investment.
WHAT IS A ‘ROI’ IN ACCOUNTING?
An ‘ROI’ or Return on Investment in accounting is the Return you are getting on the initial investments. This is the return that you have incurred on the business. Hence businesses usually demand high returns so that they can establish themselves at a faster pace. Therefore, 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;
- Maintaining a Healthy Cash Flow
- Keeping track of financial information
- Bringing in enough capital
- Handling Payroll
- Paying The Taxes
MAINTAINING A HEALTHY CASH FLOW
Maintaining healthy cash flows and with consistency is a litmus test for startups. 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 metric that determines the liquidity of a company. Positive cash flow is an indication that a company’s liquid assets are increasing, enabling it for debt settlements. Listed in three different sections detailing the activities is a company’s cash flow in a financial statement. 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 cash flow problems by staying on top of their finances. The best solution for such an issue is minimizing the expenses, and maximizing the revenues. The best way is to minimize the expenses and risks associated with businesses initially. Lowering the inventory costs and reductions in cost payments are the solutions to minimizing the expenses.
KEEPING TRACK OF ACCOUNTING & FINANCIAL INFORMATION
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 us to optimize the cash flow, pay the taxes on time & success evaluations of the businesses. Furthermore, the standings, and attracting new investors through profitability. All these activities are important to be successful and reductions in initial phase accounting challenges.
BRINGING IN ENOUGH CAPITAL
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 investors. You have to convince the investors that their investments are risk-free. In addition to this that they shall not be incurring losses in the future.
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. This is primarily because initial profitability is something that doesn’t come 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 to handle tasks in-house. Hence, there can be some major calculation errors that can take place. Thus, in that case, the best solution is outsourcing payroll activities. Outsourcing holds positive impacts on a company’s profiling, but it can be something that is cost consuming.
PAYING THE TAXES
Last, but never 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. Particularly, the owner of the startup should have a dedicated accountant. However, if the accountant is not there, they must fully understand the taxation system.
Filing of tax returns on time, maintaining offline and online records, and consistent interactions with the tax department. Hence, all these measures are important to overcome accounting challenges. Having adequate tax knowledge is important to overcome the accounting challenges in a startup business. A good solution is the outsourcing of taxing services. Taxation issues can be overcome by hiring a tax consultant.
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