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Common accounting headaches for start-ups, and how to avoid them

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Passionate. Dynamic. Disruptive. All words we associate with entrepreneurs and start-up companies. These individuals or groups of people with a shared vision are skilled at keeping plates spinning and incredibly hard-working, but amidst the excitement you’ll also find some grim statistics about the life expectancy of start-ups. One of these stats can be found in research conducted by Bloomberg[1], which cites eight out of ten start-ups fail within the first eighteen months.

Despite this gloomy forecast, the number of UK business ‘births’ remains consistent, with 381,000 businesses coming into the world in 2018, a birth rate of 12.9%, with the highest birth rate, as you might expect, in London (15.9%).

These fledgling businesses are vitally important to the UK economy and there is a long list of benefits, including job creation, the introduction of new markets and innovation, not to mention adding value to regional areas and a significant contribution to the UK’s annual turnover. Suffice to say, it is in all our best interests to support the UK’s SMEs and their growth ambitions.

As accountants, we work closely with many start-ups and nothing makes us happier than seeing them flourish. Here we share some of the common accounting challenges faced by start-ups so that you can avoid falling foul of them:

Managing cashflow

Cashflow can make or break a small business, with poor cashflow management resulting in problems such as late payments, poor supplier relationships and a bad credit rating. Keeping track of costs, expenses and seasonality allows business to plan for future growth and spot any potential gaps in cashflow before they happen, allowing finance to be raised if necessary, to cover it ahead of time.

Raising Finance

Usually this is one of the first financial hurdles a start-up will face and the decision around how to fund a new business venture can determine its future success. The two main types of finance options open to new businesses usually fall into either equity or debt finance. Equity investment involves selling shares in the company to investors, who bring experience, skills and connections that can help the business grow and will have an invested interest in the profitability of the company. Debt finance involves borrowing money from the bank - or other funding provider - and can be tailored to fit specific business requirements. There are advantages and disadvantages to both types of funding and a good accountant should be able to advise on the best route for your business.

Managing payroll

When the time is right to take on employees, keeping on top of procedures, legislation and ensuring you remain compliant can be a major challenge. Ensuring that employees are paid correctly, with the right deductions for each individual employee and on time, is crucial. There are software packages available to make keeping accurate records easier, or business owners can choose to outsource payroll management to their accountant, who will manage everything on their behalf.  

Tax & VAT

The influx of financial information required by a new business can be complicated and very confusing, especially when a start-up is growing quickly and juggling many aspects of a small business at the same time. Staying on top of payments and changes in legislation can be daunting but managing tax and VAT efficiently can ultimately make the difference to whether a business is successful or not. An unexpected penalty or large tax bill can be very damaging to a small business and conversely, understanding the taxation system can result in significant savings over time.

Managing a start-up sees business owners involved in all aspects of running a company – from operations and HR, to stock management and pension enrolment. The effort of just staying on top of day to day management can be overwhelming and keeping track of financial information comes with its own set of complexities.

When talking to our start-ups clients, we often find they have a lot in common when it comes to accounting challenges, so our Blast Off service is tailored specifically to guide new business owners through the process and provide them with the confidence and knowledge to handle much of their own financial accounting in the future, should they want to.

So don’t let your business become one of those statistics, call us on 01322 555442 or email us to arrange a free initial meeting to see how we could help.

 

[1] https://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/#60e10fad6978

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