When you start a new business, establishing solid accounting practices is essential to your success. However, many startups face accounting challenges that make it more difficult for them to get off on the right foot. Here are five of the most significant accounting challenges your startup may face, along with tips for dealing with them.
- Maintaining a healthy cash flow.
A steady cash flow ensures that you have what you need to hit the ground running. On the other hand, if the cash leaving your company exceeds the cash coming in, you are going to experience problems. New companies can avoid cash flow problems by staying on top of their finances, minimizing expenses and maximizing revenues. To minimize expenses, look for ways to reduce debt payments and/or lower the cost of inventory. To maximize revenues, invoice your customers as soon as possible and establish a clear, effective procedure for collecting accounts receivable.
- Keeping track of financial information.
Startup businesses are overwhelmed with financial information related to their revolving debts, payroll, operating expenses, accounts receivable and more. Keeping track of this information allows the business to optimize cash flow, pay taxes on time, evaluate the success of the business, attract new investors and accomplish other important tasks. To deal with this accounting challenge, small businesses need to invest in software to help them keep track of important financial information. Alternatively, startups can also delegate these responsibilities to a third party accounting service.
- Bringing in enough capital.
Another challenge commonly faced by startups involves acquiring enough capital. Many businesses accomplish this task by acquiring investors. However, with so many startups competing for investments, this can be a challenge. One of the best ways to bring in capital is to create a solid business plan and clear, concise financial records that you can show to potential investors with an interest in the company.
- Handling payroll.
Most startups have employees, which means that payroll is an unavoidable task. Making sure that payroll is accurate is essential in order to avoid unexpected expenses, tax complications and other issues. However, establishing effective payroll procedures is often a challenge. When startups don’t have the ability to handle this task in-house, outsourcing payroll to a third party is the best way to avoid problems.
- Paying taxes.
Nearly every business is required to file and pay taxes. Unfortunately, tax law is complicated, especially as it applies to businesses. Tax requirements vary based on many factors, including the business’s structure, income and more. For startups, this can be one of the most difficult challenges to overcome. Some startups are able to handle taxes on their own if they have people on staff who understand these laws and can make sure the business is always in full compliance. However, other businesses will need to outsource their tax needs in order to overcome this challenge.