Accounting Mistakes that New Entrepreneurs should Avoid

Priyansh loved meeting his uncle, a CA, over a cup of chai. Today was different though, he was more than excited to meet him, and disclose the greatest decisions of his life: he had quit his job and already started working on his start-up. Uncle Shah was delighted to hear that, and irrespective of his age, never encouraged old-school of thoughts of choosing a comfortable job that pays a handsome salary.

“Priyansh, so happy to know that! However, as an experienced professional in the field of accounting, do you mind if I share a few insights?”

“Well, yes….”

Priyansh was cut short by Uncle Shah. Obviously, needless to say, he did not wait for his approval.

“You see, impatience is the key factor for all disasters. You guys have big dreams, but are unwilling to invest time in basics of business, i.e., accounting!”

India has been smitten by the start-up wave, and you’ll see young budding entrepreneurs from all corners of the nation with dreams to build successful businesses. However, some of them ignore the most crucial part of any business, i.e., accounting of financial transactions and make some serious blunders in these areas. Ignoring this important aspect of business will impact the representation of your business, since accounts form the basis of building your financial report.

If you’re a budding young entrepreneur, you should avoid making these mistakes –

Error#1: Not hiring an expert

You need an expert who can guide you through payment of taxes and planning your accounts. Not all decisions can be taken by you, since these areas require special area of expertise. Take some tips from them, if you’re starting up a new venture and are clueless as to how head-start your book-keeping activities.

Managing all decisions yourselves is not appreciative since you might not be the best judge. Sometimes, it can be beneficial to take advice of your subordinates, who can give better insights.

Error#2: Not Giving Enough Time to Plan Your Finances

Remember, by not planning, you’re putting your business to risk. Many start-ups are going out of business, thanks to mismanaged funds or taking overtly risky decisions in finance, without gauging the pros and cons. You need to strategically plan out how to spend the capital invested by the investors, not taking hasty decisions that go with the flow.

Error#3: Not Bifurcating Personal and Business Transactions

By not bifurcating personal and business transactions, you’re inviting a lot of confusion and turmoil later. While using cash from office petty box, ensure that your cashier maintains record of it. Personal expenses are disallowed as per Income tax, hence, it is very important that you keep a proper track of your transactions.

Error#4: Not Keeping Records and Supportings of Documents

Not maintaining proper records of the transactions may result into inconvenience later. You need to present supporting documents to External auditors, to maintain the authenticity of the documents. Also, in absence of proper maintenance of vouchers and invoices, it might be possible that employees mismanaging funds. Small errors such as not giving sequence number to invoices and vouchers can lead to incredible confusion later on.

Error#5: Missing Entries, especially of cash transactions

Missing entries and failure to record transactions will cause lot of trouble to you later on while compiling financial statements. It becomes quite tedious to later on reconcile accounts and find out missing entries.

Avoiding these mistakes will boost the authenticity of your accounting system, which will benefit you on a long term basis and make a fair representation of the financial health of your organization.

“Yes Uncle Shah, I will definitely carefully consider all the pointers made by you…”

“Needless to say, if you hire an expert for accounting and consultancy, don;t overlook my firm!”