Common Accountancy and Financial Mistakes made by Nepali Entrepreneurs
An integral part of running a business, is planning for its finances and managing accounts. A lot of startups however, are very likely to make errors that are easily avoidable by simply hiring a professional, or maintaining a good record of expenses and analyzing them every month. Being aware of such errors, and a little effort to avoid or to fix them can become the deciding factor to the success of a startup. In this edition of our blogs, NEXT Venture Corp converses with Mr. Jagdish Khadka, Vice-President of M&S Holdings, who discusses five common accountancy and financial mistakes made by Nepali Entrepreneurs and how to avoid them.
Along with being the Vice-President of M&S Holdings, Jagdish Khadka is an accomplished accountant with solid accounting, auditing and advisory experience. He is a regular faculty for Cost Accounting and Financial Management paper of ICAN & ICAI in IPCC/CAP-II level in Nepal.
When starting a business, founders often start small, and so they tend to neglect keeping a record of financial transactions, thinking that they will be able to remember them. Even if they do keep a record, it’s not organized enough. This is a mistake on their part. As their business grows, it will be hard to keep track of the increased number of financial transactions, resulting in miscalculation of losses and profits, which can have serious consequences on the business. Therefore, an efficient system of bookkeeping using trained accountants is essential for a startup.
Letting overhead expenses outstrip the growth
Overhead expenses, or all costs except direct expenses on workers, materials, etc should never outstrip the growth for businesses. Oftentimes, startups in Nepal give a lot of emphasis on having a high-end office building or supplies, ignoring the importance of not letting it outstrip the growth. To solve this, they have to learn to project their revenue and expenditure, and come up with a plan for all their cash burn-outs, by prioritizing their spendings. Top priority should be given to the employees’ salary, and taxes.
Paying taxes late or not paying taxes at all
Surprisingly, this very basic aspect of owning a business has been neglected by several businesses in Nepal. Certified Public Accountants, or financial planners are a great addition to the company to keep track of and pay payroll as well as other taxes. If it isn’t possible to Paying taxes on time will make the company credible in the government’s eyes, and moreover, a 15 percent late penalty is charged for paying taxes late, which will only increase expenses, and no startup wants that.
Not setting clear purposes for borrowing
There are several aspects to keep in mind while taking loans for a startup, but perhaps, one of the most important is to have a clear purpose for the loan. Having a clear purpose for a loan helps a lender determine the risks for, thus making it easier for lenders to create the best possible terms for the company’s loan. Along with this, companies also have to assess whether the reason why the loan is being taken is correct. This depends largely on the company and its long-term goals, and what they want to focus on for the time being to maximize growth.
Mixing personal and business transactions
Several Nepali entrepreneurs are found to be mixing personal and business transactions. This could range from a mix of paperwork, to deliberately using the company’s fund for personal purposes. There is no rule against the founders using the company’s funds for personal purposes, but it is better if they determine what amount is to be seperated for personal use, which should be a reasonable amount, and then record it in the company’s accounts. Another solution to this is the owners of the company paying themselves. This way, the mixing up, which brings imbalance in personal and business life can be minimized.