Startup accounting–from organic to intentional
As we head into Year-End, the startups in our portfolio as well as ones we advise are deep into business planning for next year. One of the common themes coming up is accounting stress–that feeling of not being quite in control as the company grows and its processes go beyond what you can do by keeping tabs on your bank account.
The organic startup tends to begin with the founder doing all the books–I sure do remember my first years of frustrating finger exercises with the joy of Quickbooks. Many young companies graduate to some sort of book keeper, who keeps the file. If you’ve been there, done that, we can probably agree all of that is so antiquated it’s like crank starting a squirrel cage engine.
If you don’t know what you don’t know, though, that’s the typical path. It’s a fine path, even, for business that have “normal” growth–for example, a services business that grows 15%-20% on a good year.
Startup accounting and hypergrowth
When a startup experiences hypergrowth though–growing 30-50% or more cycle over cycle for three or more consecutive cycles–how you handle accounting makes a huge difference in whether you fly or fall. Here’s why:
- Slow financial cycling means slower decisions. Over time, building a culture of slow or stupid decisions is deadly.
- Undistributed information means uninformed leadership.
- Lack of information to inform rules (ie, do I have it in my budget) means your business is running on gas and guts, not data. This creates a culture around something other than business intelligence, but in a hypergrowth startup, the financial metrics are often the ones that matter most.
- Slower conversations with investors and financiers also impede your growth, making fundraising take too long and making reporting cycles (like for taxes or investors) strain the founding teams’ precious time.
Speeding startup accounting
So what can you do? The short answer is, just what you do in your hypergrowth business–automate the heck out of it, even if that means paying a slight premium to what “the book keeper on QB” costs. It’s well worth it when you factor in the truth that the founders’ and key employees’ time does not scale. Two strategies tend to find favor with the founders I know:
- Quickbooks Online. This is mentally an easier switch than other alternatives, and at least data is more accessible. However, QBO doesn’t have as many integrations and APIs as does my favorite, Xero.
- Xero. For companies that are hypergrowth at their core, investing in the Xero platform makes a lot of sense. The integrations, like to Bill.com, Swipe and Braintree, come out of the box. The developer/integrator network is a lot like the WordPress ecosystem: prevalent. Payroll integrations are straightforward. It shines on user management–you can have a number of types of user roles. When you find yourself coding expenses while waiting for a red light, you realize just how much Xero makes accounting “awesome”–and that kind of ease and access is just what the growing hypergrowth enterprise needs. Xero truly frees the founders to decentralize accounting and “let information be free.”
What are some of your lessons learned in startup accounting?