Setting up a business is not for sissies. According to research by the University of Tennessee, 44% of new businesses do not make it past the 3rd year, with 55% not making it past the 5th year.
The rate of failure for technology startups is actually much higher with more than 90% of tech startups ultimately failing.
The bottom-line is that most entrepreneurs trying to build a successful company will not succeed.
What does this have to do with Accounting?
According to the University of Tennessee research, it turns out that many of the reasons why companies fail are related to the mismanagement of the financial side of the company. Some of the most common causes for failure include the nonpayment of taxes, no knowledge of financing, over-spending, and poor credit granting practices.
From my experience with meeting with several new businesses over the years, it is often the case that the founders of businesses are either technical people/specialists, business developers, or a combination of the two. These do not necessarily have knowledge about managing money in a company and as a consequence, things like accounting many times end up not being attributed their due attention.
From the qualitative research we’ve done here at Clever Solutions Ltd., both with accountants and small business owners, we have found that accounting is often perceived as a necessary chore and expense. These are both negative ways to perceive a business function that is crucial to achieve commercial success.
Where does Accounting Software come in?
Making the step to using accounting software to organize the accounting function of your business is a great start to improving how you use your company’s money. Many startups still do their accounting in Excel. Although Excel is a great application, it is not made for accounting. Once the business begins growing and more data needs to be entered, Excel becomes quite cumbersome. Accounting software don’t have this problem, and with the easy to use and low-cost options available, there is little reason not to explore existing solutions.
Working with an accountant who can ensure your books are in order, your taxes paid, and who can provide you with advisory services is also very much recommended. If you don’t have the know-how, don’t try to go it alone. Accounting is not data entry (as some perceive it to be) and requires an experienced professional to get right.
Even though your accountant will be seeing to your accounting needs, you still need to be conversant with how to use your accounting software and with accessing your accounting data.
The trend with accounting software is that it is all moving online, making the accounting function more accessible to management. Suddenly the CEO can now easily view his company’s latest accounts at home or during a business trip. This important development brings accounting closer to the people in charge, and with the help of an accountant, proper financial management becomes more do-able, improving the chances of success for you and your team.
What are your views on the importance of accounting in new businesses and startups?