For majority of the startups, Financial and Legal compliance has always been the least of the priorities because founders either do not have the time or do not want to focus on it. As stated by Albert Einstein “The hardest thing in the world to understand is the Income Tax”. Founders just want to leave it to their accountants to handle these matters. Whilst this may be for the best, it is important for founders to also keep an eye out for these matters, lest they are in for a nasty surprise.
With the nation-wide lockdown due to COVID-19, the current economic atmosphere is also in a slump, with not much movement in business and consumption. However, this lean period is an ideal time for startup founders to sit back and take a look a certain aspects that they have been putting off for a while.
One such aspect is around compliance matters. Founders can use this time to do a compliance check of their startup. Some founders would have totally relied on the accountants/consultants to take care of their startup’s compliance. Now its time for the founders to focus on their startup’s compliance health. After all, its your baby and you know it better.
In this post, we are listing down the 5 Key things the startup founders can begin with. Please note that this list is not an exhaustive one, however it can be a starting point for a discussion with your accountants or compliance experts.
List out the contracts entered by you orally or via mail with your vendors. Ensure the terms agreed with them are documented. You can ask the vendors to sign those contracts electronically and you can have it documented.
This applies even for your employees where employment agreements can be prepared and signed. The terms like notice period, appraisal, IP protection, etc can be documented and signed.
These agreements are really important from a legal due diligence perspective and ensure it is in place.
PREPARATION FOR CASH FLOW
Your accountants would be following up with you for your travel bills, reimbursement statement, etc. Please spend sometime on listing it out so that all expenses are captured in your Startup’s books.
Prepare a cash flow statement of your startup right from the date of commencement to till date. There are a lot of cash flow formats available online to help you with this. Your accountant can help in pulling out the necessary details. Take some time to study the cash flow which will definitely give you some perspective on decreasing the cash outflow, savings costs, investing unused funds, etc.
Here’s an article you might like to read: How to Manage Your Cash Flow with Ease
Post Covid-19 the economy is going to take some time to revive. Therefore, founders need to focus on projecting their cash flow for next one year and see how they can plan their fund requirements, cut down costs, etc. This cash flow projection is really crucial at this point for you to take some decisions. In case there is going to be shortage of funds, you can decide on applying for a loan or bridge funding from your investors and prepare for it accordingly.
List out the compliance applicable for your startup like PF, ESI, GST, TDS, Professional tax, etc. Check whether your startup is up to date on all these and do a sample check of the filings to ensure completeness.
If the startup does not have a compliance checklist, ask your accountant or your compliance advisor to prepare one and see if it can be linked with the workflow management software used by your startup so that there are regular updates to you on the compliance of your startup.
There are a lot of benefits provided by the Indian Government to your startup. Spend some time in going through the schemes and see if it can be availed by your startup.
The following link can help you in this regard: https://www.startupindia.gov.in/content/sih/en/government-schemes.html
STARTUP BEST PRACTICES
Talk to your fellow startup founders about the practices they have implemented in their accounting and compliance department. Some startups have a monthly MIS system covering their monthly numbers, compliance, etc. These can be implemented into your startup and necessary processes can be set in place.
We are sure that any startup founder would wish to have their startup’s compliance to be at its best like their product. It can be achieved only by giving the much-needed attention and time.
Having worked with startups for many years, The Filings, provides expertise for all compliance related matters exclusively for startups. Give us a shout for assistance at: 044-46315959 or