Importance of Financial and Tax Management for Startups
Morolake Ade-John, Intern NACC
The article talks about the Importance of Financial and Tax Management for Startup businesses in Nigeria. The major ideas / key points include:
- Only 30% of startups make it to their tenth year based on several reasons.
- Financial budgeting and forecasting are frequently the toughest for startup businesses.
- The founders of various startup businesses focus primarily on product and market development but fail to understand the underlying financial flow of the business.
- Proper financial management provides sufficient information to help startups determine their tax liabilities and implement a favorable tax for their business.
- Bookkeeping is not restricted to the input of financial information into an accounting system but correctly representing all financial information in accordance with the Local GAAP or International Financial Reporting Standard (IFRS).
- The cash flow statement assists investors to understand how cash is used and managed by the business and how it may either build the business or crumble it.
- It is important to monitor the financial performance of the business from time to time by preparing a monthly management report.
- The financial forecast should be prepared to reflect on how the business will evolve over a long period of time, usually 5 years.
- Proper financial management amongst other several factors will continue to threaten the existence of these businesses and may as well disrupt the business if proper financial and tax mechanisms are not in place.
Startups have influenced innovation and contributed to the economy in various industries. Nigeria, being an emerging economy, provides a viable market for startups to thrive. Owners of startups fail to see financial and tax management as a tool necessary to build the foundation of their businesses. Thus, they do not allocate adequate and sufficient resources to the bookkeeping and finance department. Startups must keep records of all transactions which will be analyzed into reliable and meaningful financial Information for investors to make a decision. New businesses are advised to maintain robust and dynamic business model in this ever-changing economy and develop a strong finance team or outsource their finance and tax function.
My own thoughts on the topic
I feel the first thing owners of startups should do manage their financial records (tax inclusive) is to hire an experienced accountant, not necessarily on a full time basis. Though most of them might not have that in their budget but it should be considered because one must spend money to earn money. Hiring an experienced finance professional will help to ease tax burdens thereby enabling the overall business growth and expansion. Most importantly, they should form a proper structure from the beginning to avoid issues in the future.
Olufunmilayo O. and Kehinde A. (2020), Andersen Tax Digest as published on 7 January 2020 on Business Day