THE BIGGEST MISTAKE STARTUP BUSINESSES MAKE AND HOW TO AVOID IT
Why this topic? I chose this topic because of the various mistakes and errors I’ve seen businesses committed. You see people setting up businesses without keeping proper bookkeeping records and books of account because either they feel no one will come after them for anything or they are ignorant of keeping books of account. Suddenly, they received a letter of tax audit from the Federal Inland Revenue Service. And the tax authority would discover they are not keeping records and books of account. This always results in the payment of huge tax liability with heavy penalty and interest.
It is not only in the area of tax as stated above. This biggest mistake also affects the management of the business in terms of operations, profitability, and growth. This is one of the reasons why some financial institutions and banks do not want to touch micro, small and medium enterprises. So many business owners do not follow the normal ways in setting up their business and it is affecting them in the growing upstage.
Today, I will like to discuss the various ways accountants can help your business at the start-up stage so that you can avoid falling into this biggest mistake.
1. Determination of the Best Business Organization Structure of Your Business: –
Your business organization structure is determined by the form of business organization in terms of Sole Proprietorship, Partnership, or Limited Liability Company.
This form of a business organization determines the structure you will put in place to run your business. This is because they all have different peculiarities and characteristics as specified by the Company and Allied Matters Acts.
All these forms of a business organization need to be looked at closely and carefully before a business can decide which of them to employ to determine the structure to be put in place.
The nature of your business will influence the form of business organization which will eventually determine your business structure.
So many entrepreneurs and business owners in this part of the world do not seek the advice of accountants before registering their business or incorporating their companies. They feel since everyone is incorporating then it’s okay for me to do so as well and before they know it, they have put some regulatory burden on themselves. A wrong step in registering your business or incorporating your companies would result in a regulatory burden.
It is very important to seek the advice of an experienced accountant to guide you at the start-up stage of your business.
2. Accountants Help/Assists in Preparing Financial Analysis for Business Plan: –
A business plan is for planning purposes not just for fun and that’s why an accountant is needed to put you in the right path, to guide you in the area of financial analysis such as determination and preparation of your startup capital, financial projections, forecasting, cost of production and so on.
To cap it all an experienced accountant will help you to determine your business break-even point. This is the point at which total cost and total revenue are equal. There is no net loss or gain, your business has broken even and it’s sure of survival and growth.
3. Accounting Software: –
This is a key component of the accounting system that will be generating information needed to manage your business. Accountants can give advice as to the right accounting software to employ in keeping the books of account and generate financial reports.
Accountants will be able to advise you whether to invest in desktop software or subscribe to cloud accounting software. It is not all cloud accounting software that is suitable for all businesses, an experienced accountant will be able to advise you as to the one suitable for your business.
I have seen business owners invested in software just because they heard someone is using the software and they went and buy it, and later found out they could not use it for their own business. There is another situation whereby a client commissions a software developer to build accounting software for the company but ended in disaster.
That is why you need an experienced accountant, to advise and guide you as to which software is best for you and your business because each software has its own peculiarity.
4. Provide Advice and Assistance on the Opening of a Bank Account: –
Finding a bank to open an account with is not something to be taken lightly. I have seen a situation whereby a client
needed the assistance of their bank but due to bank policy they couldn’t offer the help needed, the bank only has policies for big companies, not SMEs.
Accountants will be able to advise you as to which bank has soft spot for SMEs and even which of the banks has the policy for your type of business or the industrial sector your business is in.
5. Helping to Determine the Accounting Procedures, Especially the One that Complies with Government Regulations: –
Accounting procedures and policies are critical to your business because accounting serves as the intelligence room for the business. It is in the sense that, it will serve as a source of information for decision making for your business, it will be a source of information for other stakeholders such as the tax authorities and that is why you need an accountant to guide as to the correct procedure to follow so that you would not fall into errors either with the regulatory bodies or leaving yourself with bad information for decision making.
6. Tracking Income and Expenses: –
Many businesses that do not do this at their startup stage have issues when they start to forge ahead especially when it comes to their tax obligations.
That is the reason why an accountant is needed at the startup stage to let you know how to track financial transactions data in terms of expenses and income.
An experienced accountant will be able to advise and guide as to how to capture financial transactions. Also, the accountant will be able to guide you on how to keep your business records that are tracked and how to keep the records.
7. The Importance of Separating Personal from Business Expenses: –
In accounting terms, this is called comingling. At this stage, it is important to know that your business is a creation of
law and it is a separate entity from you.
It is advisable to separate yourself from your business as it will help you know if your business is profitable or not.
An experienced accountant will be able to advise you on how to separate your finance and expenses from that of your business.
You just learned about THE BIGGEST MISTAKE START-UP BUSINESS MAKE AND HOW TO AVOID IT and that means you can now avoid the mistake by seeking consultation with an experienced accountant whenever you want to start a business. And this has also put you in a vantage position to counsel anyone to avoid this mistake also.
To that end, let’s quickly recap what you learned over the last two:
These points are well stated to let you know the importance of an accountant at the startup stage.
- Determination of the Best Business Structure of Your Business
- Accountants Help/Assists to Help Produce Financial Analysis for Business Plan
- Accounting Software
- Advising in Terms of Choice of Bank
- Helping to Determine the Accounting Procedures, Especially the One that Complies with Government Regulations
- Tracking Income and Expenses
- The Importance of Separating Personal from Business Expenses
However, a word of warning – just knowing all the above isn’t going to give you the specific result especially if your business has passed the start-up stage and you knew you make the biggest mistake and it’s affecting your business.
That’s because the key is that you need to take action on what you just learned. And that’s why I encourage you to return to the write up again, review the points, and then start implementing them right away. Because the sooner you do, the sooner you’ll start enjoying peace of mind in running your business.