Why startups should never underestimate the importance of solid accounting knowledge26 March 2018 Category:
Good financial management is vital to the success of any business. But nowhere is it more important than for startups – where margins are often tighter and the risk of failure much higher than in more established companies.
We’ve all heard the statistics – that only one in five startups make it beyond five years, and that 80% of all startups fail. While the accuracy of these headline-grabbing figures is up for debate, one thing is certain: of the startups that do fail, poor money management is a major reason why. A recent survey by data and research company CB Insights found that almost one-third of startups fail due to running out of cash – and that’s just one of many surveys to draw similar conclusions.
No business wants to fall behind with their accounts. But with busy schedules and limited resources it’s not always possible to stay up-to-date. For businesses in this position, outsourcing can be an option. But before we get on to the merits of outsourced accounting, let’s take a look at exactly what a solid accounting process should entail.
No business wants to fall behind with their accounts. But with busy schedules and limited resources it’s not always possible to stay up-to-date. For businesses in this position, outsourcing can be an option.
Getting to grips with your accounting
The German writer and statesman Johann Wolfgang von Goethe once said that “bookkeeping by double entry…is among the finest inventions of the human mind; every prudent master of a house should introduce it into his economy.”
Like Goethe, when we think of accounting, our minds usually go straight to bookkeeping, balance sheets and cash flow forecasts – the basics that every business should have covered. And it’s true that these disciplines often dictate your growth strategy and the general strategic direction of your business. But that’s only one part of what a solid accounting process should do. Here are three other areas of your business where robust accounts will make your life easier:
1. Payroll: If you’re currently running your accounts through Excel or similar software, doing the payroll each month can be a nightmare. Features are minimal, and management can be time-consuming – with users having to manually create payslips and other documentation. A comprehensive accounting solution makes this a much less arduous task. All reporting, including payslips, statements, payment confirmations and gratuity calculations, can be automated, taking running the monthly payroll from several hours of work to just minutes.
2. Procurement: Rather than marrying up several stages manually – purchase orders, receipts, invoicing and payment – a solid accounting solution should seamlessly bring these elements together. Not only does working this way make procurement easier, but it also automatically provides a paper trail, making all purchases easy to track when it’s time to run an audit or file your accounts.
3. VAT: Since 1st January 2018, under the new federal law that governs VAT, it is now mandatory for all VAT-registered companies in the Emirates to maintain accurate and up-to-date accounts. Those that don’t could face large fines – AED 10,000 in the first instance and up to AED 50,000 for repeat offenders. And the UAE authorities can request other documents, including general ledger, VAT ledger, credit and debit notes, and copy invoices both issued and received. Managing such a process can be extremely time consuming – particularly as all of this information must be correctly maintained for a minimum of five years.
The fact is that most startups don’t have dedicated expertise at their disposal to manage all these tasks; and even if they did, it wouldn’t be possible to dedicate the time required to get these things right and get a new business off the ground all at the same time.
The case for outsourcing
Fortunately, there is a good answer for the time- or resource-strapped business that needs to keep on top of its accounts: outsourcing. Here are four great reasons to outsource your accounting.
1. Cost savings
Because you don’t need to maintain your accounting software in-house, outsourcing allows you to reduce the costs of software subscriptions, computer hardware, training, and admin (including things like office supplies) as well as salary and benefits for in-house staff. Many businesses spend up to 5% of their revenue staffing and training their internal accounting department. These costs can be reduced by over half. What’s more, you might also save money by avoiding the negative consequences of an accounting mistake, which can lead to fines, regulatory costs and loss of reputation. Accounting mishaps can cost you a lot more than the cost of bringing in an outsourced provider, even without the direct cost savings.
2. More expertise
Outsourcing puts the whole process in the hands of an expert – not someone who just updates Excel when they happen to have a spare five minutes. Not only does this ensure greater focus and expertise on the accounting task, but it also frees you up, the business owner, letting you get back to what you do best – which is running your business.An expert in the field will not only ensure that your accounts are fully compliant, but most will also prepare your VAT return for you. The same is true of payroll. Simply hand over basic account and salary information and your payroll is taken care of every month – including any required calculations and issuing of payslips.
3. More resources and support
As well as greater expertise, a dedicated accounting service will also have more resources at their disposal, making it easy to scale the level of service you require as your business grows. Many businesses find that this approach is far more cost effective than employing an in-house accountant. You can also benefit from expert support and guidance. Most reputable providers can advise on cash flow management, procurement, sales and marketing, inventory control and internal risk management.
Most reputable providers can advise on cash flow management, procurement, sales and marketing, inventory control and internal risk management.
4. More integration and flexibility
Outsourced software can sit on top of a business’s current accounting platform but still use the business’s own accounting platform as the system of record. And outsourced software is very flexible: it can either do the processing itself or can be licensed back to the client to do it for themselves. It’s intuitive and flexible as well as lower cost.
So don’t just accept the headache of keeping on top of the books as part and parcel of running your business. Look to improve your process, free up valuable resource and save money by outsourcing every aspect of your company accounting.
Our VirtuAccounts team is here to help you with Accounting, VAT and Payroll, so you can focus on your business. We also offer advisory services to help your company move forward and reach new heights. For more information call us on +971 4 457 8200 or email us on email@example.com.