Accounting Mistakes Startup Businesses Make. Cotchy Bookkeeping and Accounting

5 Accounting Mistakes Made by Australian Startups Costing Thousands

1. Untimely Information

Financial information is received too late and not accurate. When you are operating a startup there is always a cash burn and the time is always ticking. As a result, startups need accurate monthly financial information. Most startups receive Quarterly financial information from their bookkeeper but it is not usually 100% accurate. This is not good enough. Accurate Monthly financial information allows decisions to be made on software/product iterations and the extra costs of that work and how that affects the Cash in the bank. Traditional businesses, whether fast growing or not operate on a much slower cash burn because there is usually substantial more revenue compared to costs at the outset of the business.

2. Incorrect Captable

Founders own funds, Family, Friends and Angel contributions, Pre-Seed Funding, Seed Funding, Series A, Series B etc etc all have different valuations and so the Captable is being adjusted with every round that occurs. Too many startup founders have incorrect information in their captable and this results in these basic miscalculations costing them potentially millions. They are tricky calculations and whether you are using an Advanced Excel spreadsheet or dedicated Captable software the crap in crap out rule applies. If you also throw in SAFEs and the Options register for your key employees then mistakes and time/cost taken to get these tables and calcs right is hugely costly to Startup Founders.

 3. Three Pronged Attack

Startup founders will often use a Three Pronged Attack when tackling their Accounting needs. Firstly, they will often use themselves to run their captable on excel which is so difficult and takes up so much time. In addition, Founders will often get too involved in Bookkeeping. Secondly, they use a busy, lower level bookkeeper who doesn’t know enough about startups. This means lack of timely and accurate reporting with this bookkeeping service. Thirdly Founders will usually use their external Tax Accountant to update the share registry, minutes and Directors listings. This takes too long and is usually too expensive for Founders looking for service. So this three pronged attack on Accounting costs too much and takes too long.

4. Corporate docs are a dogs breakfast

Most Startups are correctly run under a company structure. A company is registered with the Australian Securities and Investments Commission ( ASIC ) and it’s directors and shareholders are recorded as part of the obligations. When other investors come on board it’s a tedious administrative process. Every individual investor or related party investor needs to be recorded with ASIC when they take up shares offered. Too often valuation per share amounts are recorded on company secretarial documents rather than paid up capital per share. There is a huge difference and it’s usually a dogs breakfast that is scrambled back into shape when investors are being pitched for a funding round. The time taken to back track and complete accurately when investors are ready and waiting for the dataroom to be ready is a big mistake that far too many founders face.

5. Projecting Runway

Cash burn, the bane of all startups. Calculating your cash burn will allow you to project your runway. Too many founders either do not calculate their runway, do not project it in software or get it wrong. Accurately projecting runway allows for timely decisions. Those decisions are vital. Do I employ that fantastic salesperson I’ve been liaising with? Is my valuation accurate in 12 months time assuming MRR continues to increase at it’s current rate? Do I need to start preparing in the winter or the spring for the next funding round? These are vital questions that cannot be answered accurately without an accurate runway forecast.

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