Bad Accounting Structures Can Doom Startups

Bad accounting structures exist in companies for a wide range of reasons, and in the article, “The Five Most Common Ways Startups Waste Money” by Henry Kressel and Norman Winarsky in Fast Company magazine, bad accounting structures, made it onto the list. Kressel and Winarsky provide real-life examples of how bad accounting structures can hurt a company. They also share how proper accounting can be beneficial and provide reliable financial tips.

When a startup company is within 3 to 6 months of running out of cash, they’re in trouble, and it’s most likely due to not being able to raise the necessary capital. They had convinced investors that they’d be a success, and now they’re spending more money than they’re making. At this point, it will be incredibly difficult to find a new financial investor.

Below are 4 big-money wasters

Prematurely hiring staff

While in the early stages of a young company, it’s important to evaluate the needs of the company. Being in a rush to hire personnel can result in employees with little to do and cost you a fortune in the process. Instead, focus on hiring trained individuals with marketing and business development skills that can target your need to work with potential customers. This can help you to start bringing in that revenue, and after the money and connections have been established, you can branch out and increase your sales staff.

Remaining too informal

While most early-stage ventures are relaxed in the workplace and don’t resort to monitoring employees, if it remains this way for too long, it could be damaging to the company. Figure out how your company is going to track and monitor the performance and productivity of employees. Also, make sure that those at the management level are given the proper training. 

Poorly managing or marketing the product

There are a lot of reasons why poor product management can cause a startup to waste money, including:

  • Selecting the wrong first product and targeting the wrong customers
  • Misjudging the product features
  • Technology issues
  • Falsely believing that the product is not good enough

These issues often stem from a small consumer feedback group and not the needs of the broader market.

Selecting the wrong partnerships

When a company is fresh, it makes sense that it would try to partner with a larger and more established company. Unfortunately pursuing the connections and partnerships can take a lot of the management’s attention and distract from the company.

Click here to find out how DLC can help you head in the right financial direction with your startup.