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  • Yaser Khamis

Accounting For Entrepreneurs

There is an increased emphasis on entrepreneurship in the GCC (Gulf Cooperation Council). Governments are striving to transform our economies by developing the entrepreneurship ecosystem. Globally, there is an entrepreneurship revolution. Social media is making it easier to reach target audiences. Cloud services are reducing the need for the high costs of IT systems. The barriers to entry are also lower, and the time it takes to build successful companies is decreasing. The result is the creation of more companies, increased pressures on margins and profitability and higher levels of competition. In this publication, we examine the relevance and role of modern-day accounting to entrepreneurs, and how to use accounting to build your company.



ACCOUNTING: WHAT IS IT AND WHY DO ENTREPRENEURS NEED ACCOUNTING?

Businesses wishing to sustain and grow must manage their finances. Accounting is a broad term that is understood differently by people. Many people associate accounting with the preparation of financial statements for submission to licensing authorities, banks, investors, etc. While that is true, it's not the most relevant type of accounting for startups and small businesses to use to achieve their ultimate objective - growth.


People also use the terms accounting and bookkeeping interchangeably. Understanding the key differences between the two disciplines and the abilities of bookkeepers and accountants can bring you much closer to understanding what the numbers of your business mean. Understanding the differences can also help you recognize when and how to use each.


There are two basic types of accounting relevant to entrepreneurs. The first type looks back in time and helps with the analysis and reporting of the past performance of your business. Examples include the preparation of annual financial statements or monthly management accounts. These functions relate to record-keeping or bookkeeping. A more descriptive label for this type of accounting is 'Accounting for Survival' as we shall explain.


The second type looks at the present and the future and deals with setting the destination and planning what to do going forward. Examples include setting the strategic direction of the business, setting goals and KPIs, etc. We shall label this type as 'Accounting for Growth'.


In isolation, the first type of accounting is unlikely to help your business grow. However, it supports by significantly reducing the risk of business failure and sustaining the business. It also provides the necessary information and data used as the foundation for the second type of accounting. The second type is the strategic level of accounting and mainly concerned with assisting with growth tactics.


ACCOUNTING FOR SURVIVAL / BOOKKEEPER


Bookkeeping assists with recording financial transactions, posting sales and invoicing, settling bills and paying creditors, etc. It is predominantly transactional and administrative.


The principal objective of your bookkeeping efforts should be the survival and sustainability of the business, rather than growth.

The risk of business failure is higher without bookkeeping. Much higher. Your survival prospects improve when you control expenses and manage cash-flows to ensure that you do not suddenly run out of cash to pay suppliers, employees and the rest of the people who need to be paid. Bookkeeping is a must for all businesses.


Bookkeepers are generally educated up to diploma level considering the transactional nature of the role. The work of a bookkeeper has to be overseen by an accountant or the small business owner if he/she has an adequate level of financial literacy.


The specifics of bookkeeping and how to get it done are beyond this publication. The objective of this section is to highlight the importance of bookkeeping/record-keeping. There are many excellent online resources on the subject, and if you are ever in doubt talk to us.


ACCOUNTING FOR GROWTH / ACCOUNTANT


Accounting is a higher-level discipline that is at the strategic level. It's essential to get into the specifics in this section. Unlike bookkeeping, entrepreneurs focused on building the business cannot wholly delegate accounting. Involvement in accounting matters is a must. However, there are exceptions. Small business owners content with the current status of the company need not concern themselves with accounting, provided the company is sustainable, and they have no plans to grow.