As the owner of a startup, you must juggle a lot to make your vision a reality and keep your business moving forward. To do that effectively, you need the right accounting system, and that includes optimized software, efficient workflows, and skilled talent. The best solution varies based on multiple factors including the size of your business, your business model and geographical considerations, to name a few. But the funding stage of your startup can also help you choose what kind of accounting software to use.
Here's a brief breakdown of some business stages and a look at some of the software and solutions Stacklist startups use:
When acquiring a business, regardless of size, structure or complexity, don't handle the financial aspect of the sale yourself. Have an in-house accountant or Chief Financial Officer (CFO) lead the process, or hire an outside consultant. Additionally, unless you're willing to buy a lot of debt, work with an acquisitions lawyer to broker an asset-only deal, or consult closely with an accountant to assess the implications of acquiring debt.
If you are merging the acquired company with an existing company, accounting professionals are critical for rectifying the books, while database specialists can scrub and import data from one company's databases to the other for accounting and business intelligence purposes. During the acquisition, map the workflows of the acquired company, and identify which processes should be adopted, changed, merged or eliminated depending on your situation.
Once the business has been acquired, your accounting software needs are going to vary based on what stage your company is in, as well as other factors. However, one of the most popular options for companies at all stages of funding remains to be QuickBooks. This program makes it easy to log expenses and uploads receipts, it integrates with bank accounts as well as online payment services such as PayPal and Square, and it allows you to make your own white label invoices.
When you start a business with your own funds, capital can be tight, and to preserve existing resources, you need an accounting system that is as efficient and affordable as possible.
As you are getting your business started, consult with an accountant about creating salary structures, managing payroll, registering for statutory requirements and taking care of administrative issues such as creating invoices or writing checks. In rare cases, your business may need a full-time, in-house accountant right away, but in most cases, with relatively modestly sized companies, a simple out-of-the-box accounting program that can track expenses, generate invoices, handle payroll and manage cash flow is all you need.
At tax time, port the information into tax software on your own, or to ensure you maximize deductions, hire an accountant to handle it. Some of the most popular accounting software and services for bootstrapped startups include Less Accounting, FreshBooks, and Early Growth Financial Services.
Rather than offering a bulky solution full of tools small businesses don't need, Less Accounting offers a pared down set of tools. The company believes many small businesses need less accounting tools rather than more, and designed for people who "hate bookkeeping.” Its software includes income and expense tracking, invoices and proposals, mileage tracking, and report forms. The software also syncs to your bank account, and the company offers a ten-minute demo to teach you how to use it. Ryan Evans, the co-founder of Tend says:
“LessAccounting is very simple to use and very intuitive. Some of the other tools are more formal accounting software so it takes a little more to maintain them. LessAccounting is quick and simple.”
FreshBooks is intuitive and easy to learn, and it's based in the cloud so you don't have to worry about buying new hardware. Ideal for startups focused on client services, ranging from lawyers to plumbers to psychologists, FreshBooks features time tracking features --simply open the app and instantly track how much time you are devoting to a client. Nick Cinger, uses it for his accounting solution at Campayn:
"It integrates with our services well and makes our accounting easy to manage. FreshBooks is good for generating invoices for our users. These invoices can be modified, searched through, and printed through their system."
The monthly fee varies based on the number of clients, but the unlimited option is still affordable, and you can try this accounting software free for 30 days.
Early Growth Financial Services gives bootstrapped and small businesses access to senior accounting services. You can turn to EGFS for basic tax services to help fill out forms and to calculate and submit income, sales and payroll taxes. Additional accounting services include accounts payable, quarterly GAAP (generally accepted accounting principles) statements and bank account reconciliation. Finally, CFO services can help with financial projections, cash forecasts, debt negotiations, and other micro and macro financial goals and challenges.
As your business expands, it pays to think more about workflow efficiency as well as software and services. Specifically, there are some workflow processes that may work perfectly for a small company but are likely to need refining as the company expands. For example, imagine that now an employee writes a purchase request and a manager approves it. Then, the employee buys the purchase, saves the receipt and gives the receipt to the bookkeeper who records the expense and reconciles with the purchase order. This process involves a lot of individual steps as well as contact and communication between multiple individuals, but as the company grows and even more people are submitting purchase requests, incurring expenses and handling receipts, it may pay to eliminate some of the steps, reduce redundancies and streamline communication through new processes or automated solutions.
Many of the accounting systems that work with a bootstrap business work competently for companies started with seed capital as well. However, you should ensure that your accounting system can track and manage long-term debt, and make sure it can handle accounting related to equity financing.
Aside from using accounting software that lets you record daily expenses and revenues, you can outsource most of your accounting needs or hire an in-house team. If you decide on an in-house CFO or accountant, you need someone who can handle cash flow management and ensure the numbers break even. But they also need to be able to project how long the seed money is going to last and perform aging analysis for debtors and creditors.
Starting at just $9 per month, Xero is an affordable and surprisingly comprehensive option. It handles invoices, estimates, payments, payroll and most common accounting transactions, but it also has other features that make it ideal for a seed-funded company such as handling multiple currencies, allowing the input of custom rule sets and sorting uploaded transactions. Dylan Baskin, the co-founder & CEO of Qwilr uses Xero and says:
“Xero has done a fantastic job of making accounting tasks manageable and understandable for users that are not accountants. Everything is very straightforward and the documentation is well written. We also have an external accountant.”
As your startup grows and you decide to raise a Series A, you almost always need an in-house person for financing. As you delve into debt or equity-based financing, you need someone, trustworthy and knowledgeable to guide you through the process. Ultimately, regardless of whether you continue to outsource accounting services, focus on workflows.
Examine the workflows both in your accounting techniques and throughout your business and streamline processes by detecting bottlenecks, eliminating duplicate procedures, improving communication between departments and increasing organization. As you attempt to attract equity financiers as a Series A startup, being as efficient as possible can be critical.
Most importantly, address any visibility issues you have with your accounting systems. If your current software doesn't have advanced custom reporting tools and easy-to-read, insightful dashboards, switch to one that does. NetSuite and QuickBooks both do.
NetSuite is more than just accounting software. It is a unified business management suite of software solutions. It includes accounting and finance components, enterprise resource planning (ERP), client relationship management (CRM) and e-commerce software. Ken Davis, the CEO of TaskEasy (a Series B startup) shared his experience with NetSuite:
“We thought we would spend more money if we adopted the NetSuite platform, but they did a very good job of creating a good platform. If we were to go back, we would probably adopt their service. I think that we would have gotten to where we are faster. When you make a decision between creating your own tool and using something that is already on the market, you have to consider the payback period. If creating your own tool takes more than 5 years of investment in yourself, the payback period is too long.”
In lieu of those options, work with a vendor to create a custom accounting solution. Choose a modular system with advanced reporting tools, scaled to your current needs but able to grow with you. By the time you're advancing into the Series B round of financing, it may be time to consider SAAS (software as a service) accounting solutions with custom features that mirror your processes. By this stage, your workflow should be integrated into your software, to automate most of your processes.
In the growth stages, cash flows are growing more rapidly than the economy on average, and to continue your growth, you need to focus on constant reinvestment. At this point, you should have a full-time accountant on board, but more critically, you should have a CFO in place helping to guide your enterprise in the right direction and giving your critical financial insight that goes beyond the numbers on the page. To ensure your workflows are as productive as possible, you should be utilizing social, mobile, analytics and the cloud to manage workflows.
For out-of-the-box accounting solutions for growth companies with between 50 and 250 employees, Intacct offers many of the advantages of a tailor-made solution. Kemp Edmonds, the Marketing Director of FreshGrade explains why they moved onto Intacct from QuickBooks:
“We used to use QuickBooks, but we decided to upgrade to Intacct because we needed more functionalities and our head of finance is familiar with it. Intacct is a very complete tool.”
In addition to the usual suspect of double entry accounting features, Intacct features customizable dashboards that give you a macro-level view of your finances, while also letting you drill down into more granular details. In terms of communication, the software has features that allow your sales, service and finance teams to leave notes on entries or communicate with each other, without leaving the app.
Whether you opt for custom software or an accounting solution like Intacct, your software should have strong security controls in place that restrict which personnel can access various modules as well as specific line items in the software. For internal safety, audit logs should track all logins and activity by username to increase accountability, decrease mistakes and track transactions. Finally, the system needs to integrate with your other software solutions to increase the overall efficiency of the company.
Honing in on the right accounting system for your startup can be challenging, but it's important to remember that the right system is likely to change as your business advances through various levels of growth and funding. As you decide on software, employees, and workflows, adopt processes that can grow and change along with you. That can help make your transition to the next stage of growth or funding as easy and straightforward as possible.