Do Startups Need Accountants?

Do Startups Need Accountants?

Outsource My Accounting - Best For Your Startup

Who is Accountable?

My best bet is you hardly heard of the name Benedetto Cotrugli (Italian) or Benedikt Kotruljevic, in original Croatian version.

He wrote in 1458, a treatise Della mercatura e del mercante perfetto  or Of commerce and the perfect merchant in English translation, the oldest known manuscript about double-entry bookkeeping system. It is this piece of work that made him the real father of accounting.

Therefore, this diplomat, economist, merchant, and scientist from Dubrovnik (Croatia) is highly accountable that we are talking today about accounting and do startups need accountants.

Do I Need to Hire an Accountant on Day One?

Starting your business does not mean you need to hire accountant immediately. In most cases, you don’t require the accountant on day one. If you are not making money you don’t need someone to count it, right?

Many small business owners are doing accounting on their own. Tracking key metrics like sales and expenses is simple if you know basic accounting and how to use accounting systems such as QuickBooks, Zoho or Xero. Excel spreadsheets are handy as well for these tasks.

For startups, the most important is to get a customer and then get an accountant.

The need for the accountant is defined on where the business is in its life cycle and in what type of business the startup is.

If you need to get a proper advice and service about getting a loan or if you need to raise money for your startup you should get an accountant on day one.

How Exactly an Accountant is Helping My Business?

Many entrepreneurs ask themselves what to study to become a successful entrepreneur? One of the answers should be accounting. Accounting is the language of business and should be mandatory for anybody in business, let alone for entrepreneurs.

In order to learn a new language, the language of business, you need to invest your time, energy and in many cases financial resources as well. If you don’t have any of these resources it is better for you to rely on accountants or those who mastered the language of business.

  1. Accountant is keeping my books

This is something no one likes but everyone needs. In order to produce meaningful reports and provide a proper advice to business owners, accountants need to choose the right accounting system, set up the chart of accounts and start recording transactions. The vast majority of accountants would favor businesses where this is already done, where they can focus more on giving valuable analysis and value-added advice on how to grow your company.

  1. Accountant understands the financial position of my business

At the earliest stage of business, the most important financial metric to track is sales.  Of course, logging your expenses accurately is the next thing to keep an eye on. Tracking sales and expenses will give the insight into whether or not your business is making the profit. There are two key ratios to track profitability:

  • Gross margin – shows how much percentage of sales is left over after all direct costs (e.g. costs of materials and supplies in producing your product)
  • Net margin – shows how much of sales you are keeping after all expenses are paid
  1. Accountant is managing my cash flow

Despite the fact that cash is the lifeblood of a business — the fuel that keeps the engine running — most business owners don’t truly have a handle on their cash flow. Poor cash flow management is causing more business failures today than ever before.

— Philip Campbell, author of Never Run Out of Cash

Many business owners don’t understand that being profitable is not the same thing as being positive with cash flow. In short, you are cash positive if the inflow of cash is higher than the outflow of cash, measured in the same period. Your financial statements are showing that you are profitable but still you can end up bankrupt if you run out of cash.

Your accountant is monitoring, analyzing and managing your cash flow in order to effectively control all inflows and outflows of cash and ensures you have enough cash to cover all your current obligations and prepares a detailed covering plan for the next period.

  1. Accountant is bringing a credibility to my business

As I said before, accountants are speaking the language of business, the same language financiers and investors are using as well.  If you are applying for a bank loan or seeking investors you will bring credibility and confidence to the table if your accountant has prepared required financial statements according to IFRS or GAAP.

Not having a finance professional at the table with you during the negotiations you may have trouble communicating your message and eventually end without required funding.

  1. Accountant is helping me grow my startup

Your business is starting to grow which means you are hiring more employees, increasing vendor list, serving more customers and expanding your market. The growth brings more paperwork you will not be able to handle on your own. To keep track of all these changes and how this is affecting your company you should hire an accountant.

  1. Accountant is taking care of the legal stuff

As a business owner, you may have the required expertise to understand and interpret all the legal obligations your company is due to meet, but in fact, you will not have the time for that. Your accountant will ensure:

  • you comply with the law and thus you avoid any penalties or criminal charges for negligence;
  • you have structured your business and transactions in a tax-effective way making you not overpaying taxes and losing additional money;
  • you have enough time to spend it where it matters the most – to grow your business.

Decide What’s Best for Your Startup

Outsource My Accounting - Do Startups Need Accountants

It’s easy to understand why small business owners might see bringing an accountant to their startup as unnecessary. Small profit margins, little-to-no funding, and a tight working staff mean even the tiniest expense can produce havoc and make or break a company. However, an accountant’s work is about more than just crunching numbers, filing taxes and recording transactions.

A trusted accountant is like a year-round business mentor, always delivering the right advice when needed. It’s a support for entrepreneurs during the bad times and reassuring one during the good ones.

Considering almost half of all new businesses fail in their first 4-5 years, bringing on experienced financial professional is less of a luxury and more of a necessity.

When do you think is the right time to bring an accountant?

 

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