Some Basic Auditing tips for Startups
Startups are the way forward for the business ecosystem around the world. Startups are unique in their approach to business. A combination of innovations and neo-work culture appealing to the younger workforce is popular in many countries worldwide, including the UAE. Startups have created excellent shareholder value for the founders and investors alike.
Accounting and auditing are crucial for Startups in running the business, giving many insights like the business reports and market trends and playing a pivotal role in raising funds from venture capital to fund business expansion. A financial audit is a mandatory requirement of the due diligence process for startups to obtain Series A and later stages of funding from investors.
The financial audit for startups is a thorough examination of all the company’s financial documents to confirm that all the documents are a fair and accurate representation of the transactions dealt with by the company.
Requirement for Auditing in Startups
There are numerous scenarios where it is required by a Startup to carry out the audit of its finance. The following scenarios are somewhere an audit may be required-
- A fundraising round with the investors interested in the Startup and want to learn more about its operations.
- A regular audit of the Start-up’s statements can play a significant role in the later fundraising stages (typically at Series B & C funding). At times, a financial audit is required at initial Series A funding for startups with high growth potential.
- Financial audit reports are mandatorily required when the Startup makes an Initial Public Offerings in the stock markets.
- A detailed financial audit report must be submitted to bank authorities while obtaining the loan process from banks and other financial institutions.
- Audit documents are a part of due diligence at the time of company acquisition.
Audit Tips for the Startups
Please refer to some of the audit tips which will be helpful for startups in running their business and maintaining a healthy balance sheet.
Bookkeeping and Accounting Practices
Startups should ensure to deploy a system wherein all the financial documents are recorded, including receipts for all the purchases made by the company. As a good practice, startups should only process payments to vendors after receiving a valid invoice with an itemized list and relevant tax details. In addition, a dedicated email is maintained for Accounting purpose, which can be easily referred to whenever required. Recording and maintaining all financial records will become handy when auditing with minimum disruption and mental stress.
In recent times, accounting software will automate much of the record-keeping process and store company financial records digitally. It makes the process easier to document and access the amount, time, place and business purpose of any financial transaction to claim expenses as tax deductions.
Organize and Maintain Records
All the records and documents on financial transactions should be sorted and organized systemically. When an error is found in a specific document, it will be easier to access the related documents to confirm when the documents are organized. It will further save time and energy. During internal and external audits, any required documents are produced with minimum hassles to the audit team, which will ensure the audit is completed in time. Successful completion of audit plays a crucial role in achieving the goals of the Startup.
Bookkeeping can be defined as the organized process of tracking all income and expenses in an organization. It is a crucial component of financial management that ensures the Startup founders have the required information to analyze and make sound business decisions at all times. Hiring a Bookkeeper dedicated to the task or, for startups, outsourcing the function is often a wise investment.
Open Start-up-Friendly Bank Account
Startups and small businesses usually struggle with opening a bank account. The reason is in certain situations, the banks consider startups and other small businesses as ‘not bankable’ apart from the strict regulatory requirements adherence and high minimum account balance requirements. But in recent years, some banks have introduced many start-up-friendly schemes catering to the needs of startups. Moreover, opening a corporate bank account could mean the Startup can efficiently deal with creditors and debtors.
Avail Professional Tax Preparation Guidance (VAT)
Startups that are in their initial growth phases would be lacking in financial resources and must spend conservatively. Appointing your internal accounting staff would be feasible for established companies but not for initial startups. Inhouse employees with limited skillsets and less accounting experience are not suitable to handle accounting and bookkeeping. Therefore, it is recommended that startups outsource all accounting and bookkeeping services to trustable accounting firms in the UAE.
Audit Planning and Documentation Gathering Procedure
Startups with sufficient planning with the availability of required documentation will ensure that external auditors will have ample time to complete the audit process and submit the audit reports. The audit report is crucial in achieving the set goals of the Startups. If adopted and practised relatively and transparently, the above points can ensure to bring favourable results to the startups.
How Can Jaxa Help?
Jaxa Chartered Accounts are the trusted accounting and audit partners working closely with many firms in the UAE. Our offices are accessible to firms from all parts of the country. In addition, our expert consultants have significant experience working with smaller companies and startups by assisting in setting up bookkeeping and accounting processes. Please Contact Us for any queries regarding startup services. We’d be happy to help!
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