Accounting is viewed by some as a back-office support operation, but to any business, financial stability and growth are based upon it. Quality accounting is not only accurate, sufficient and in compliance, it also supports the strategic decision-making process. However, most small and medium-sized enterprises (SMEs) in India end up making the same accounting errors that can jeopardise financial stability, undermine reputability and even lead to penalisation.

At Starters’ CFO, we have seen many startups in Delhi and India that have made these easily preventable mistakes, which have cost them. By tackling them in the early stages and establishing proper financial procedures, companies can save a lot of time, money and effort to establish a great foundation of success in the long term.

Commingling of Personal and Business Finances

Among the common pitfalls of entrepreneurs is the inability to distinguish between personal and business finances. Some founders will use identical bank accounts or credit cards on both. Although this is convenient, it compromises the difference between personal and professional spending, making it difficult to determine the work performance of the business.

Ambiguous records would cause endless problems later, when it is time to perform tax filings or apply for financing. This is not only frustrating to both the investors and lenders, but it can also attract the attention of the taxman. The problem can be solved by keeping specific business accounts and keeping all monetary transactions transparently written down. Earning as a Starter usually leads to the need to open specialist banking and accounting systems to maintain cash clean and legal.

Inefficient record-keeping, backdated book updates

Reliable accounting is centred on timely and accurate record-keeping. Yet most startups do not bother to refresh their books until tax time or an audit is impending. It is common practice to end up missing receipts, making inaccurate entries and producing incomplete records.

Lack of current records does not enable businesses to know their present cash situation, inefficiencies they are recording, or even budgeting for future developments. This error can be evaded by using modern digital tools and rigorous bookkeeping. At Starters’ CFO, we are there to ensure that businesses adopt cloud-based accounting systems that update the records regularly so that the financial data is accurate and accessible all the time.

Inappropriate Classification of Receipts and Disbursements

Another common problem that corrupts financial statements is misclassification. Entrepreneurs can fail to capture expenses by using the correct headings or may not make any distinction between the capital expenses and the operational expenses. On the same note, revenue can be booked before time, and a distorted image of profit is created.

This can cause compliance risk and wrong decision-making. As an illustration, profit reporting may be overstated because it may encourage wasteful spending, whereas understating their income will expose them to tax fines. Our accounting team at Starters’ CFO will make sure that all transactions are recorded under the right categories as per the accounting standard, thus leaving companies with clean books and eliminating future arguments.

Neglected Tax Compliance

The Indian tax regime is diverse with necessities relating to GST, TDS and corporate filings under the Ministry of Corporate Affairs. The failure to stick to tax deadlines and underpayment of the taxes due are two major mistakes that many new companies make, and they have to face the consequences of paying fines in most cases. Failures to claim the rightfully available credits are caused by insufficient information and poor record-keeping.

The Starters’ CFO offers end-to-end compliance management, where the businesses make payments and realise their taxes after the required filing deadline. We also advise on tax optimisation to enable startups to minimise their tax liabilities and remain fully tax compliant in India.

Ignoring the Management of Cash Flow

Top-line revenue growth is something startups are proud of, but a profit in profit-and-loss statements does not necessarily mean a healthy cash flow. Companies that do not keep track of the inflow and outflow of cash find it hard to settle daily requirements, including payroll, supplier payments, and running the business.

Mismanagement of cash flow is capable of destroying credibility, abusing relationships and bringing an operation to a halt. The most important thing in avoiding this is by planning proactively, making the right forecasts, and constantly monitoring the plans. At Starters’ CFO, we assist startups to prepare cash flow projections, monitor collections, and develop strategies that can enable liquidity to remain high despite the tough situation.

Being Too Dependent on Inside Teams

Although an internal accountant is beneficial, some startups are forced to use little in-house expertise. Basic bookkeeping can be done, but other areas like investor reporting, business valuation or compliance management often need expert advice.

Companies will run the risk of engaging in strategic errors that may reflect poorly on their future development before the onset of external knowledge. Outsourcing CFO services will fill this gap by giving you access to knowledgeable financial experts at a fraction of the cost of employing a full-time CFO. At Starters’ CFO, our Virtual CFO services provide start-up businesses with access to strategic financial advice, compliance, and investor readiness reporting so that their financial management is future-proofed.

Ignoring Financial Reports and Insights

Financial reports are more than compliance documents; they are tools that can be used in decision-making. Unluckily, several business owners overlook these reports or do not interpret them appropriately. When balance sheets are not examined, neither are profit and loss statements or cash flow reports, then decisions are simply based on guesses.

Starters’ CFO not only does these works with precision but also translates to founders in simple, easy-to-follow ways. This enables the owners of businesses to make informed decisions on whether to expand, hire, make investments and manage risks.

Avoiding Technology in Accounting

In this era of digitalisation, it is a very expensive mistake to still be using outdated manual accounting systems. Manual processes are largely prone to errors, not to mention they are inefficient and, in many instances, they are not real-time. This puts businesses at a disadvantage, particularly when there is a need to be fast and accurate in a very dynamic market like Delhi and other Indian cities.

We invite startups to adopt new, cloud-based accounting applications that support automation, live access to data and safe storage. As Starters’ CFO, we help our clients implement the adoption of technology-based solutions that will not only enhance accuracy but also release time to the client to focus on other strategic business issues.

Laying a Good Accounting Foundation with Starters’ CFO

All of the afore-mentioned errors, such as mixing finances, delaying records, misclassifying entries, overlooking compliance, neglecting cash flow, over-trusting internal teams, overlooking reports, and avoiding technology, can have disastrous consequences to emotionless businesses and SMEs. The positive thing about this is that the pitfalls can be completely avoided when the right structures, mechanisms and professionals are in place.

Starters’ CFO is an expert in supporting entrepreneurs to set up sound accounting systems that suit their business structures. Whether it is the implementation of digital solutions and compliance management or the interpretation of financial reports and Virtual CFO services, we are partners in financial management in the long term. We are committed to seeing startups in Delhi and nationwide stand tall, knowing their accounts are correct and well taken care of.

Conclusion

Accounting errors can be minor to start with, but eventually they grow and they can cause compliance, cash flow and even reputation mishaps. By acting preventively and reaching out to professional services, startups and SMEs can prevent these traps and establish their business on much stronger grounds.

As Starters’ CFO, we do more than just clean up the mess of businesses we assist; we also work on developing accounting systems that underpin future growth. By switching to us as a reliable partner, entrepreneurs will be able to spend their time on what they are good at most, in other words, on innovating and scaling, leaving the financial accuracy and legal compliance to us.