Accountancy and Startups.!

After being given the task of financial reporting of the small entity that I had recently joined, i gathered relevant data, processed it and produced a basic P&L and Balance sheet. Content with my achievement (No financial reports had been prepared prior to this), I presented the set of reports to my manager, who was also the owner of this promising start-up business.

Half an hour later I was being asked questions beyond comprehension.!!!

e.g.

Question: your report shows profits but i don’t have this money in my bank. where did the money from profits go?

Question: If the balance sheet is balanced, does that mean we can detect fraud?

Question: My business car has high resale value, why did you reduce its price by using depreciation?

Question: You have put bank balance as ‘debit’ but in my bank statement it is shown as ‘credit’. Why is that?

and so on….

I somehow managed to explain in simplest of terms and while I was doing so, I was constantly thinking about the importance of basic knowledge of accounting and finance for aspiring start-up entrepreneurs.(Assuming that most start-ups cannot afford accountants or business consultants). A crash course, accountancy texts or even guidance from friends/relatives with accountancy experience is a must in order to successfully launch and excel in the case of new start-ups.

Without proper accountancy, figures and estimates get mixed down the line and it becomes hard to trace financial tracks. Eventually resulting in a state where decision making becomes hard because of the obscure financial position.

The above narrative can also be proved by 2 simple questions:

Question:    Why do Businesses Exist?

Answer:     Primarily to make money/profits.

Question:     How do you know if you are making profits?

Answer:     If you know how to account for the transactions being performed and then how                      to summarize that data to form business and financial reports showing                                    profits.

Basic knowledge of accountancy is usually overlooked as being one of the prerequisites of starting a new business. It is an integral part at this phase and crucial to success, it should feature on the check list of new start-up owners as a high priority item.

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