Have you ever wondered why your business is disorganized? Or the main reason your business is not thriving is because you only focus on profitable earnings and not on how to maintain them? Not keeping your accounts is one of the major reasons. Most people consider this a boring task and end up ignoring it but later this results in creating more problems for them.
This is why people often say “Know your numbers”. For any start-up, it is compulsory to keep a check-in balance of their expenses, revenues and cash flows. It is as important as pitching and as vital as the sale of products for any start-up to succeed into a business. Still unsure about account keeping?
Below is a list of reasons as to why this should be your top priority.
The key purpose of keeping accounts is that it will help you monitor the progress of your start-up. This means that you will learn how much profit your start-up is making in a given period of time. It will help you in figuring out which of your products is more in demand and which product is taking you towards loss.
A key advantage in keeping accounts is that it helps maintain tax records. This includes not only keeping a list of your deductible tax expenses but also, you will have all the details for tax audit when the time comes. If you don’t have any, you may end up paying way more tax.
In order to understand cash flow, firstly, it is important to understand the difference between cash flow and profitability.
Profitability is the sum of revenues and expenses of a start-up. Whereas, cash flow is the amount which a business receives or pays. The main difference is that cash flows do not determine your profitability but rather when a business receives cash, the expenditure amount like employee’s salary and the other bills are deducted first and what remains at the back end is known as profitability.
This is important because keeping accounts will determine your cash flows so you will know if you can meet liabilities on time and if you can save enough through your product revenue to fulfill your debts in that time period.
What usually happens is, most start-ups, which are funded and do not keep their account books tend to go towards loss. This is because they don’t keep an account of the numbers. Without giving it a second thought, they tend to spend money on things like a funkier product design or a new app feature. Fully aware, that they will be able to pay for this but not the debts they have piled up for their start-up. Keeping accounts will force you to think a hundred times before taking any step so you’ll know how to use money in a valuable way.
Account keeping helps in planning the future of your business. For e.g. it helps you in identifying your receipts so that at the end you have enough proof to show that you have already paid for the production of your product if the latter denies it. It will also help when you’d want to take a loan from any bank because the first thing they will demand from you will be an income or a balance sheet to check if your business is stable enough to be granted a loan. By looking at your records, planning will help you in identifying how much you can afford to spend next month.
Working capital is the total sum which is left behind, minus both the assets and the current liabilities of that specific start-up. Keeping a record of your account books will help you determine how much assets your company currently holds and how much money is to be returned back to you after the production.
In case, you don’t know how to manage accounts or if you’re a technical person then try opening an account in a bank on behalf of your company. Or hire an accountant from your local service center at monthly or yearly pricing to keep track of all your record and lay back stress free!
Remember, never to hand over your account keeping in the hands of incompetent people! Always hire the best of the best for a successful start-up! For our services, please refer to the link below.