Founders have a lot on their minds. The importance of proper bookkeeping for the company’s success can sometimes fade into the background.
But why shouldn’t, and what stumbling blocks should still be avoided in the financial accounting of startups? Why is proper bookkeeping so crucial for startups?
Proper bookkeeping is hugely relevant in the context of what the investor is reviewing. If startups want to succeed and grow, they are usually very interested in raising capital. For this reason alone, it makes sense to have sensitive bookkeeping with sensitive reporting right from the start.
In principle, proper bookkeeping is the minimum requirement for success. Despite everything, the “quick and dirty” solution is not a good idea for bookkeeping because no founder needs to worry about the tax office.
In the first five years, most startups fail. There can be many different reasons for this; some are as follows:
- There are no established processes. These must first be created and, at the same time, kept agile so that they can change together with the startup. More specifically, this means that an increasing volume of sales also means that you must readjust the accounting processes. The processes must by no means become too complex.
- The accounting must be designed for reporting from the start. Presenting reasonable figures every month is what it takes to get new investors on board.
- A lack of competent staff is often a significant challenge for startups. Accordingly, the question of which things are displayed in-house and displayed outside of the building should be asked and answered repeatedly.
Medium-sized companies do not have problems with their internal finance departments and clear job descriptions.
- In 2020, 32% of the startups surveyed by PwC considered cash flow to be one of the most giant stumbling blocks. How can startups prevent cash flow problems? To avoid cash flow problems, you need someone on the team dedicated to raising money at the right time. It is correctly done by someone good at pitching, communicating, and negotiating with investors. The whole topic of financing for startups is a separate finance area. And, of course, If a company does not manage to cover this area, it will probably not survive.
Cash flow problems are the most significant limiting constant. If you run out of money, then you are dead.
- When it comes to bookkeeping, word has got around that you don’t have to do any brutal clean-up later if you get things in order right from the start. Clean-up work is massively more expensive than creating orders from the start.
What Questions Do Startups Come to You With?
The two questions we hear more often are: When do I start? Can I get someone involved shortly before the next round of financing?
Regarding the first question, you should say that most startups are a little late with finding them. The foundation should occur before a comprehensible value is created in the startup project. So preferably before the proof of concept and, in any case, before the evidence of the market.
When it comes to another question, most of them already know that a later involvement of other founders or key employees shortly before the next financing round can be dangerous. There are best practices on how to solve such challenges. However, you should explain this to me in good consultation.
Anyone with a business idea usually thinks of many things and problems. Would you like to have your accounting reliably under control but not the necessary knowledge? This article will discuss some of the critical accounting problems a startup faces.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
