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  • Writer's pictureYaser Khamis

Accounting For Entrepreneurs

here is a growing emphasis on entrepreneurship within the GCC (Gulf Cooperation Council) region. Governments are actively working to transform our economies by fostering the entrepreneurship ecosystem. Globally, an entrepreneurship revolution is underway. Social media platforms are facilitating easier access to target audiences, while cloud services are diminishing the need for costly IT systems. With lower barriers to entry and a decrease in the time required to establish successful companies, we're witnessing the proliferation of startups, which in turn leads to heightened competition, pressure on margins, and profitability.

In this publication, we delve into the relevance and role of modern accounting for entrepreneurs, exploring how accounting practices can be leveraged to bolster your company's growth.



ACCOUNTING: DEFINITION AND SIGNIFICANCE FOR ENTREPRENEURS

For businesses aiming to thrive and expand, effective financial management is essential. While many perceive accounting as primarily focused on preparing financial statements for regulatory bodies, banks, and investors, this represents just one aspect of the discipline. Moreover, accounting is often erroneously conflated with bookkeeping.

Understanding the nuances between accounting and bookkeeping, as well as the distinct skill sets of bookkeepers and accountants, is crucial for entrepreneurs seeking to decipher their business's financial data. This understanding enables entrepreneurs to discern when and how to utilize each discipline effectively.

Broadly speaking, there are two fundamental types of accounting pertinent to entrepreneurs. The first type involves retrospective analysis, focusing on past performance evaluation through activities such as annual financial statement preparation and monthly management accounts. This aspect, often referred to as "Accounting for Survival," primarily revolves around record-keeping or bookkeeping functions.

Conversely, the second type of accounting shifts its gaze towards the present and future, involving strategic planning and goal setting to chart the course for business growth. Termed "Accounting for Growth," this strategic accounting is instrumental in devising growth tactics and setting key performance indicators (KPIs) aligned with the business's strategic direction.

While the first type of accounting, in isolation, may not directly foster business growth, it serves as a vital support mechanism, significantly mitigating the risk of business failure and providing the foundational data required for strategic planning. The second type, operating at a strategic level, is primarily concerned with driving growth initiatives and maximizing business potential.


ACCOUNTING FOR SURVIVAL: THE ROLE OF A BOOKKEEPER


Bookkeeping serves as the backbone of financial management, encompassing tasks such as recording financial transactions, managing sales and invoicing, settling bills, and ensuring timely payments to creditors. Primarily administrative and transactional in nature, its primary aim is to ensure the survival and sustainability of the business rather than focusing on growth initiatives.

The importance of bookkeeping cannot be overstated, as its absence significantly elevates the risk of business failure. Effective bookkeeping practices empower businesses to control expenses, manage cash flows, and prevent sudden cash shortages that could jeopardize payments to suppliers, employees, and other stakeholders. Thus, bookkeeping is indispensable for every business, regardless of size or industry.

Typically, bookkeepers possess educational qualifications up to diploma level, given the transactional scope of their role. However, it's essential for their work to be overseen by either an accountant or the small business owner, especially if the latter possesses a sufficient level of financial literacy.

While the intricacies of bookkeeping and its execution extend beyond the scope of this publication, the primary objective of this section is to underscore its critical importance. Numerous online resources offer comprehensive guidance on bookkeeping practices, and should you ever require clarification or assistance, do not hesitate to reach out to us.


ACCOUNTING FOR GROWTH: THE ROLE OF AN ACCOUNTANT


Accounting transcends the administrative realm to assume a strategic dimension crucial for business expansion. Unlike bookkeeping, entrepreneurs committed to business development cannot entirely delegate accounting responsibilities. Involvement in accounting matters is imperative, albeit with some exceptions. Small business owners content with their company's current status and lacking growth ambitions may choose to overlook accounting intricacies, provided the business remains sustainable.

It's paramount to acknowledge that the primary objective of the small business accountant is to translate the entrepreneur's vision into tangible, measurable goals and facilitate business growth.

Accountants play a pivotal role in cultivating a data-driven culture within the organization, focusing on goal setting, providing insights based on both financial and non-financial data, measuring performance, and offering meaningful analysis. Below, we outline essential considerations and tasks. While an experienced Accountant or CFO can offer assistance, it's crucial for Entrepreneurs, Founders, or CEOs to lead on these matters.


Strategic Thinking

Setting the strategic direction is among the most daunting tasks for business owners. Accountants and CFOs contribute by posing pertinent questions, refining strategic thinking, and modeling the financial ramifications of strategic and operational decisions.


Capital/Debt-Raising

Raising capital or debt is a time-intensive endeavor fraught with challenges. Investors often hold sway over negotiations, dictating terms to their advantage. The accountant or CFO streamlines this process, undertaking preparatory work and collaborating closely with the entrepreneur. An experienced CFO provides guidance on capital raising strategies, negotiates bank debt terms, develops coherent financial models, crafts compelling narratives for investors, and facilitates negotiations.


Setting Goals, KPIs, and Metrics

Startups traverse distinct phases, each necessitating tailored goals and key performance indicators (KPIs). Goals remain static over time, while KPIs respond dynamically to immediate needs. An experienced accountant or CFO aids in setting priorities, refining goals and KPIs, establishing dashboards, and conducting periodic analyses.


Other Tasks

Accountants and CFOs contribute to financial forecasting, capital expenditure (CAPEX) planning, operational risk management, dashboard setup, cash flow management, management reporting, pricing strategies, cost control, and routine accounting duties such as financial statement preparation and compliance with accounting standards, including VAT returns.


THE MOVE TO ONLINE ACCOUNTING


The trajectory toward cloud-based solutions heralds the future of accounting. As the world embraces cloud integration as the new standard, it's imperative for businesses to adapt. Even if your current accounting systems seem adequate, the risks associated with clinging to outdated methods extend beyond capability—they directly impact your competitiveness and potential for growth. Businesses that resist technological evolution risk falling behind and facing potential failure.

But what exactly is cloud accounting? Traditionally, accounting involved software installed locally on desktop computers (e.g., Desktop Tally). Cloud accounting, on the other hand, employs software hosted remotely in the cloud, accessible online. Cloud accounting software operates on a Software as a Service (SaaS) subscription model, offering flexibility and accessibility without the need for on-premises installations.

Leading cloud accounting platforms like Xero and FreshBooks offer small businesses a streamlined and cost-effective solution. Beyond affordability and efficiency, cloud accounting software boasts a plethora of benefits, including:

  • Seamless integration with other cloud services.

  • Intuitive user interfaces.

  • Automated data backup.

  • Robust data security measures.

  • Automatic software updates at no extra cost.

  • Automation of manual processes and report generation.

  • Accessibility from any location with internet connectivity.

  • Real-time availability of critical financial information.

  • Minimal to no capital investment in infrastructure.

  • Flexible scalability options without long-term commitments.

  • Facilitation of paperless business operations.

Embracing cloud accounting not only enhances operational efficiency but also future-proofs your business, ensuring adaptability and competitiveness in an ever-evolving landscape.


ACCOUNTING FIRMS FOR STARTUPS AND SMALL BUSINESSES

The advent of cloud accounting technologies has revolutionized the accessibility of accounting and business consulting services for startups and small businesses. Previously considered out of reach, these services now offer a wealth of benefits and operational efficiencies, thanks to cloud accounting's evolution.

Accounting firms cater to the specific needs of startups and small businesses, offering a range of valuable services. Building upon the distinction between bookkeepers and accountants outlined earlier, let's explore the role of accounting firms in this context:

  1. Bookkeeping firms specialize in outsourced bookkeeping services, emphasizing convenience and competitive pricing. Their primary value lies in relieving entrepreneurs of the time-consuming task of bookkeeping, enabling them to focus on business growth.

  2. Accounting firms offer more comprehensive outsourced accounting services, extending beyond basic bookkeeping. In addition to convenience and pricing advantages, accounting firms provide access to advanced services such as business advisory and Virtual-CFO services. This breadth of expertise can prove invaluable for startups and small businesses seeking strategic financial guidance.

While some entrepreneurs possess moderate to high levels of financial literacy and may consider handling their bookkeeping internally, this approach often consumes valuable time that could be better spent on business development. While cost management is undeniably crucial for startup survival and growth, delegating low-value administrative tasks and specialized activities requiring in-depth expertise is a strategic move.

In summary, partnering with accounting firms tailored to the needs of startups and small businesses allows entrepreneurs to optimize their time, tap into specialized expertise, and prioritize strategic initiatives essential for business success and growth.


GUIDANCE FOR INTERACTING WITH ACCOUNTANTS

A word of caution: Accountants, especially advisors, often present an array of titles, services, and promises. While startups face daunting challenges, there's a smart approach to navigate through them without shortcuts.

Entrepreneurs must see beyond flashy advertisements and marketing materials. The term "advisory" can be ambiguous; scrutinize the service offerings of advisory firms to grasp its complexity. The issue lies in its broadness, meaning different things to different people.

Here are some pointers:

  1. Evaluate the firm or advisor as if you're hiring them full-time—because essentially, that's what you're doing.

  2. Ensure that the proposed services align with the qualifications, experience, and skills of the service provider.

  3. Seek clarity on deliverables or outcomes. For instance, don't commission a recommendations report if you need a practical implementation of a solution.


KEY TAKEAWAYS


  • Startups entail significant challenges.

  • Every business requires effective bookkeeping.

  • Leverage accounting practices to foster growth.

  • Embrace cloud accounting as the future.

  • The value offered by accounting firms extends beyond operational and pricing efficiencies when providing complex advisory services.

  • Accountants, particularly advisors, often employ elaborate titles and make grand promises. Remain cautious.

  • The distinction between bookkeeping and accounting can be blurry. Focus on skill-based assessments and value propositions rather than accepting claims at face value.

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