Why Accounting is Crucial in Startups
Here’s Why Accounting is Crucial in Startups
Startups face many challenges that can potentially lead to failure. However, the number one cause of failure is the lack of accounting procedures in place at startups like cash flow management.
This results in underestimated costs and poor budgeting, prompting bankruptcy and failure. Because of this, financial experts in the business world — especially accountants — are in huge demand this year. As new companies emerge and others look to grow, they need these professionals to keep their finances on track.
Universities are meeting this demand by making education degree programs in financial services more accessible through remote learning courses. This ensures that more students become knowledgeable in financial matters, marketing, and general management skills. When they graduate, they can serve in businesses and help startups reduce the risk of failure.
After emphasizing the importance of accounting above, here are a few more reasons why it is crucial in startups:
To aid in financial planning
Every business needs a plan. It’s a guide to help turn your idea into a successful business. Aside from doing market research, forming a team, and securing funds, you’ll need to make a financial plan. This includes financial projections to prepare you for what lies ahead in terms of funding. You may think that you can achieve this by simply saving up. However, you also need to be prepared for unforeseen circumstances. Accountants have a financial planning and analysis background, which is perfect for this reason.
With this background, accountants can help you align and measure your financial goals and enact the necessary processes. For instance, if you plan on expanding in the next few years, they will assist in money management and investing to reach this goal. They can also help you plan and build a buffer for emergencies. Financial planning is crucial for startups that need to be careful with their funds to prevent failure.
To ensure tax compliance
Tax noncompliance by businesses results in fines and loss of customer trust. Fortunately, accountants have expertise in filing taxes. While you may hire a bookkeeper in place of an accountant, only accountants are certified in tax processes and audit assistance.
Depending on your location, there may be different federal, state, and local tax requirements you need to meet. An accountant will ensure you meet all of these at the right time to avoid complications. Tax compliance can also help if an acquiring company is interested in your startup. Filing correct returns display compliance with laws, allowing the company to build confidence in acquiring your startup for longer-term success.
To manage bank account reconciliation
Bank account reconciliation compares bank statements and financial records to check if they match. Doing so enables you to catch missing transactions and detect fraudulent activities that would otherwise put your startup at financial risk.
This process requires an accountant’s skills in balancing a general ledger. They’re experts in proper accounting principles and general business practices, allowing them to detect inconsistencies between your records and account statements. Accountants are also equipped with critical thinking skills to help solve problems encountered during this process.
To keep financial records in order
Bookkeepers record and organize financial data. Nonetheless, accountants also do this, in addition to interpreting said data to track business growth and presenting it to investors for funding. For this reason, keeping accurate financial records is the key to a successful startup.
Recorded financial information lets you see what made your startup grow, giving insight into what business actions to pursue, tweak, or maintain. It’s also important to present accurate, detailed records to interested parties who want to sponsor your future business ventures.
Accounting guarantees that your startup is tax compliant, free from fraud, and has a good financial plan and organized records. Hire an accountant or an accounting team to ensure that your startup gets these benefits and succeeds.
Article written by Riley Jopin Exclusively for Christine McCaron
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