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Topic: Importance of Financial and Tax Management for Startups
bit.ly/36xEUQy
#taxmanagement #Andersentax #Nigeria #Startups
Topic: Importance of Financial and Tax Management for Startups
bit.ly/36xEUQy
#taxmanagement #Andersentax #Nigeria #Startups
1. Startup businesses all over the world are experiencing a boom in various industries ranging from manufacturing, transportation, hospitality and even the financial industry. #taxmanagement #Andersentax #Nigeria
2. In Nigeria, there has been significant increase in small businesses. It is also important to note that small businesses make up a very large portion of the Nigerian economy. #taxmanagement #Andersentax #Nigeria
3. Startups have influenced innovation and contributed to the economy in various industries. The Founders of such business in Nigeria focus on creating innovative ways of providing solutions to perceived problems while relying heavily on the use of technology. #taxmanagement
4. Nigeria, being an emerging economy, provides viable market for startups to thrive. Despite all these, research has shown that only 30% of startups will make it to their tenth year based on several reasons. #taxmanagement #Andersentax #Nigeria
5. Some of such failures range from wrong business model to no market for product, poor financial management, ignoring tax compliance etc. #taxmanagement #Andersentax #Nigeria
6. This article however focuses on problems resultant from poor understanding of financial and tax management for startup businesses in Nigeria. #taxmanagement #Andersentax #Nigeria
7. Most times, startups fail to keep proper financial records of their business from inception. The Founders focus primarily on the product and market development, but fail to understand the underlying financial flow of the business. #taxmanagement #Andersentax #Nigeria
8. This is key to success of the financial and tax management of the business. Owners of these businesses fail to see financial and tax management as a tool necessary to build the foundation of their businesses. #taxmanagement #Andersentax #Nigeria
9. Thus, they do not allocate adequate and sufficient resources to bookkeeping and finance department. #taxmanagement #Andersentax #Nigeria
10. Importance of Financial and Tax Management- Most startups rely heavily on investors, whether Angel investors or Venture Capitalist (VC) in raising funds to develop their products and services, #taxmanagement #Andersentax #Nigeria
11. grow their business and limit their investment risk in series of investment rounds. However, Investors majorly depend on Financial Statement (FS) to determine whether the business is viable for investment. #taxmanagement #Andersentax #Nigeria
12. Therefore, startups must keep records of all transactions which will be analysed into reliable and meaningful financial information for investors to make decision. #taxmanagement #Andersentax #Nigeria
13. Proper financial management also provides sufficient information to help startups determine their tax liabilities and implement a favorable tax plan for their business. #taxmanagement #Andersentax #Nigeria
14. Often times, most startups fail to comply with tax laws and regulations largely due to lack of financial information. Some others even fail to register for federal and state taxes. #taxmanagement #Andersentax #Nigeria
15. As the business continues to grow with huge profit, the businesses are exposed to large tax liabilities and penalties, which may eventually cripple the survival of the business. #taxmanagement #Andersentax #Nigeria
16. Financial Management – Understanding the Underlying Principles- Before a startup prepares its financial statements, there is a need to first record all transactions usually for a period of one year through the process of bookkeeping. #taxmanagement #Andersentax #Nigeria
17. Bookkeeping helps to gather financial information through day to day recording of all transactions carried out by a business. #taxmanagement #Andersentax #Nigeria
18. Bookkeeping is not restricted to input of financial information into an accounting system or Enterprise Resource Planning (ERP), but correctly representing all financial information in accordance with the Local GAAP or International Financial Reporting Standard (IFRS).
19. In doing so, information gathered will better represent the true and fair position of the business and provide easy analysis of the information.#taxmanagement #Andersentax #Nigeria
20. The foundation of a financial structure is the balance sheet. The balance sheet is the picture of the financial position of the business at any given point in time. #taxmanagement #Andersentax #Nigeria
21. The components of the Balance Sheets are Assets, Liabilities and Equity. Assets includes; cash, current assets such as account receivables, prepayments and non-current assets such as; properties, plants and equipment. #taxmanagement #Andersentax #Nigeria
22. The liabilities include long term liabilities such as long term loans, deferred taxes and short term liabilities such as payables, accruals etc. #taxmanagement #Andersentax #Nigeria
23. The Equity in the balance sheet reflects the ownership structure of a business. It consist of the shares held (whether ordinary or preference), profit/loss retained etc. #taxmanagement #Andersentax #Nigeria
24. In analysing the balance sheet, investors look at important ratios such as the net working capital, debt to equity ratio, equity structure, current ratio to determine financial position and business sustainability. #taxmanagement #Andersentax #Nigeria
25. The income statement and cash-flow statement show the financial processes of a business over a period of time. The statements sit on the foundation of the business, the balance sheet. #taxmanagement #Andersentax #Nigeria
26. The income statement is made of up the revenue, cost of sales/services, and operating expenses. #taxmanagement #Andersentax #Nigeria
27. The difference between the revenue and cost of sales/ services represent gross profit. Investors are quite keen on knowing what the gross profit margin of a business is before they decide to finance such business. #taxmanagement #Andersentax #Nigeria
28. The gross profit margin justifies the profitability of the fundamental structure of the business. Operating expenses represent the different expenses incurred by functional unit of the business. #taxmanagement #Andersentax #Nigeria
29. Often times, businesses make mistake of lumping all operating expenses into selling, administrative and general expenses. #taxmanagement #Andersentax #Nigeria
30. For investors, this information is not very useful as they want to be able to analyze critical activities/ expenses of the business and determine the operational efficiency of each activity/functions. #taxmanagement #Andersentax #Nigeria
31. The operating profit is the difference between the gross profit and the operating expenses. The Cashflow statements of the FS shows the cash movement from operating, investment and financing activities. #taxmanagement #Andersentax #Nigeria
32. The cashflow links the income statement to the balance sheet from the operating profit in the income statement to the cash balance in the balance sheet. #taxmanagement #Andersentax #Nigeria
33. The cashflow 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. #taxmanagement #Andersentax #Nigeria
34. Financial budgeting and forecasting is frequently the toughest thing for startup businesses. More often, most startups exceed a realistic budget, thereby missing their agreed target by miles. #taxmanagement #Andersentax #Nigeria
35. This is not good enough as most investors rely majorly on the variance analysis between actual and budgeted financials. #taxmanagement #Andersentax #Nigeria
36. Therefore, it is imperative for startups to avoid ambiguity in preparing budget, and focus on the key drivers for revenue and cost for operating expenses. Operating budget should be prepared monthly for a 12 months period. #taxmanagement #Andersentax #Nigeria
37. Financial forecast should also be prepared to reflect how the business will evolve over a long period of time, usually five years. #taxmanagement #Andersentax #Nigeria
38. Financial forecast should reflect the business model and strategy the founders have adopted in order to achieve the business and financial goals of the startup. #taxmanagement #Andersentax #Nigeria
39. The forecast should be benchmarked against similar companies in the same industry and should be adjusted against external forces such as political, regulatory, technological, socio-cultural practices of the business environment. #taxmanagement #Andersentax #Nigeria
40. Finally, it is important to monitor the financial performance of the business from time to time by preparing a monthly management report. #taxmanagement #Andersentax #Nigeria
41.These reports serve as a scorecard to determine how the business performed in a particular period usually on a monthly basis. In addition, a realistic Key Performance Indicator should be set by management to determine how well the business meets it targets. #taxmanagement
42. These indicators helps investors to make quick decision while investing in such business. #taxmanagement #Andersentax #Nigeria
43. Conclusion- Startups are drastically altering various industries in Nigeria, thereby, influencing the Nigerian economy from job creations, to revenue generation and so on. #taxmanagement #Andersentax #Nigeria
44. However, several factors such as proper financial management amongst others 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. #taxmanagement #Andersentax #Nigeria
45. New businesses are advised to maintain robust and dynamic business models in this ever-changing economy and develop a strong finance team or outsource their finance and tax functions. #taxmanagement #Andersentax #Nigeria
46. Outsourcing these functions to professionals is usually more cost effective and provides the founders ample time to focus on the key operations of the business. #taxmanagement #Andersentax #Nigeria
47. It is also imperative to employ the services of professionals with adequate knowledge and skill in the sensitive area to recommend bespoke structures in line with best practice. #taxmanagement #Andersentax #Nigeria
48. Andersen Tax is a global firm with wealth knowledge in various areas cutting across Bookkeeping/Finance Practice, Private Client Services, Restructuring, Tax Advisory and Regulatory Service amidst others. #taxmanagement #Andersentax #Nigeria
49. We will be happy to work with you in setting up a framework for successful finance and bookkeeping practice and implement the same to meet your company’s goals. #taxmanagement #Andersentax #Nigeria
Thank you everyone who joined in on our #twitter conversation. We hope to see you all next Thursday
