Accounting in Start-Ups – Common Mistakes & How to Avoid Them
Accounting is not only about recording and presenting business information; it is rather a means to manage one’s business efficiently and effectively. Many start-ups often ignore this fact and do not allocate enough time and attention to accounting activities. Until they realize, it’s too late. Furthermore, tracing and undoing these accounting mistakes might be cost loss of time and money (penalties!!).
Accounting in Start-ups is more likely to have these common mistakes, which may have simpler solutions if handled with care.
8 Common Mistakes in Accounting by Startups & How can you avoid them:
1) “I’ll handle accounting myself!!”
One of the most obvious responsibility you might end up taking is doing accounting all by your self. It is a quite clear option when you decide to stay low on your costs in the initial years of your business. But, it proves to be a disaster if you aren’t clear with basic concepts of accounting!!
What should you do:- Make use of technology for accounting. This would help you keep your costs in control without impacting performance. Accounting software assists you in dealing your accounting activities. Many of them are available at affordable rates and greater efficiency. Also, ask for help whenever you are struck.
2) “I entered a wrong amount!!”
As humans we are bound to make mistakes, and if not corrected, mistakes while entering data can be hugely misleading.
What should you do:- Always double check while making entries related to amount. Also, make sure you use tools that provide you an option to edit the entries once made.
3) “I don’t remember where I used this missing amount”
Very often, we forget to record smaller expenses and purchase of some inexpensive items. Also at times an important and expensive transaction might go unrecorded because you misplaced its voucher.
What should I do:- Technology helps us everywhere!! You can scan and save vouchers of your transactions on your drive or accounting software (if it provides you such a feature, try this Receipt Manager). While entering data, you can use these copies and make sure you don’t miss anything.
4) ” Vishal, why are we paying for two data plans every month when we only use one?!!”; “Oh!! probably I recorded my mobile data plan charges in our business”, replied Vishal with disappointment. He paid bills together and missed to separate them!
Does this occur with you??! Don’t worry you are not alone!! Like you, every other individual struggles to differentiate in these expenses! This gentleman would now sit deleting one entry from each month of the year!
What should you do:- One might add a personal account along with cash & bank accounts and other expense accounts. While making an entry, you can chose if it is paid for any particular business expense or your personal expense. Likewise if you paid for a business expense, you might chose the account of payment from cash/bank or your personal account. Accounting softwares provide features of adding accounts in the system and using them at the time of entries.
5) “Why are we out of cash, when we made 40,000 profit this month??!!”
You sold goods and made profit; but, haven’t yet received your payments! Most often many entrepreneurs mix up their net profits with their cash-flows. They fail to maintain enough cash at hand for running their business.
What should you do:- One must budget for cash receipts and payments to avoid running out of cash. Accounting softwares provide for cash-flow statements to help entrepreneurs. Some softwares provide for cash balances on daily basis to better plan for the day.
6) “Its March, I have a lot to do!! Bank statements have a different story to tell and books don’t agree with; as usual!!!!”
Do you spend your year-end reconciling your bank and business books??? You avoid matching passbooks with your business books always. but at the end, you are left with no choice but to do.
What should you do:- Form a habit to reconcile your books regularly, probably every fortnight or month or quarter. You can add data into your accounting software and it would assist you to reconcile. You can then prevent yourself from paying additional penalties to bank for not maintaining enough balance.
7) ” I missed out these invoices weren’t while filling GST returns!!”
These mistakes cost you penalties in heavy amounts. But you couldn’t find all your invoices at one place and had to file return anyway! Tax authorities don’t let go negligence and continuous mistakes make you willful defaulter!!
What should you do:- Try to be as organized as possible while dealing with your legal obligations. Make your invoices using accounting softwares only. It would provide you with an appropriate GST Return in required format regularly. Make sure you adhere to deadlines.
8) ” Vishal, why are you doing all this manually; your software can provide you with these reports in just one click???!!”
One cannot be aware about every feature of the software but one must try and keep pace with updates in the tool. One must give time and attention to learn about new features their accounting software offers. You should regularly reach out to your service provider and ask for training that can make your work easy. After all, softwares are made to assist us, we rather use their potentials.
In conclusion, these common mistakes can be prevented and technology is an all in one solution. Use your accounting softwares as your business assistants. Make your businesses better.
What more? On the go Accounting using mobile apps! So, go get them!
Zybra is a cloud based accounting software & app that serves small businesses and startups to manage their work effectively. Many have improved their efficiencies, do you wish to???
Download Now check how can it help you being better.
- Posted on Jul 4, 2018
- By Leena Bhagchandani
- 0 Comments