7 accounting challenges start-ups face
Starting your own business can present some interesting challenges but here are key finance tips to help you overcome the hurdle
Simon Smith, general manager of MYOB UK Business Division, the accounting software supplier, highlights the seven main concerns facing those starting out in business in 2006.
The prospect of being your own boss is as attractive as ever. Whether the goal is to build an empire around a great idea, fulfil entrepreneurial ambitions, become your own boss or simply downshift, over 180,000 people in the UK choose to strike out in business on their own every year. But securing financial backing is just one of a host of worries for the small business owner.
Starting your own business can present some interesting challenges. We recently asked our customer base to tell us about the major hurdles they faced when starting out and found some common concerns emerged. The results made for interesting reading:
1. Raising finances: Raising adequate funds to finance a business is one of the most important, but yet one of the most difficult hurdles faced by any budding small business owner. The key here is to think professionally for example, if you are going to the bank to secure a loan, take along a professional record of accounts. Also be aware that the true measure of success is cash flow. Sound records will help keep track of available finances and plan for the future.
2. Lack of accounting knowledge: It is unusual for small business owners to have an accounting background which is often a cause for concern, given that failing to keep records up to date can seriously impact the survival of a business. However, there are easy to use software packages that will take the pain of accounting away from the business owner, leaving you time to focus on running and growing your business.
3. Planning for future growth: many small business owners want to grow their business, however as it expands, the basic needs of the business may change. This is particularly true in relation to accounting software and I would advise that small business owners consider the future growth of their company before investing in new technology. Software should be easily scalable and have a clear upgrade path so that it can easily accommodate changes as your business grows.
4. Lack of technical knowledge: It is necessary to embrace new technology in order to make the most of your business, yet many people struggle in this area. There are easy courses available to get you on track and also many vendors will offer support from their team of experts to keep you on track and out of trouble.
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5.Training and consultancy: This is a simple question of who do you turn to for help. Starting out on your own can be a lonely journey and I would encourage small business owners to seek out professional support. Many accountants specialise in providing such value-add services and can add significant value to a small business.
6. VAT confusion: cash or accrual? Many people are unaware of the difference between the cash or accrual methods of accounting for VAT. So put simply, the accrual method means that you pay tax when the invoice is raised, even if you have not received the payment, whilst the cash basis allows you to pay VAT on sales when you receive payment from your customer. Getting professional advice on such issues could improve cash flow for your business.
7. Changes in government legislation: Small businesses can often be unaware of government incentive schemes which can be of benefit to them. Take for example the PAYE on-line filing (payroll year end reports) incentive scheme that was introduced by HMRC last year. According to an MYOB survey earlier this year, 27% of small businesses in the UK were still unaware of the cash-back incentive for filing PAYE returns online two months before the deadline. Small business owners should use the services of their accountant to keep up to date with changing legislation.