Startup financial advice: Have your bookkeeping in order!

Startup financial advice: Have your bookkeeping in order!

When I am not working with the founders of Wovenware (Carlos and Christian) on financial matters, I spend a lot of my time advising entrepreneurs structuring startups and business owners restructuring their companies and their processes. More often than not, many of them suffer from a common illness: lack of interest in their financials. It is easy for me to push for proper accounting, I am a finance and accounting geek… but I can provide several examples why having lousy bookkeeping will cost you… and it will cost you a lot!

  1. You don’t know where you stand – many companies think they are doing fine because they feel busy. Heck! They’re so busy, they don’t have time to invest in proper bookkeeping… While that may earn you bragging rights amongst your competition, colleagues and friends, this is a definite way to ruin an otherwise healthy company. Being busy has nothing to do with properly monitoring your cash flow. You may have clients, but if you cannot pay your employees, suppliers and vendors, you’re pretty much going nowhere fast. I have seen this plenty a time: great visionaries providing great service, yet not having proper bookkeeping resulting in: forgetting to invoice clients and recording accounts receivables, improper invoice management, duplicating vendor payments, amongst other issues… All of these draining cash and if you’re hearing this for the first time: Cash Is fact! Profit is a matter of opinion.
  2. Strategy – You wouldn’t go to war without knowing how strong you compare to your opponent, would you? What makes you think you can tackle your competitors if you don’t know your strengths? Financial strength that is.
  3. That which you don’t measure, you cannot improve – many initial reviews start with analyzing previous financial performance. Analyzing and dissecting trends, asking questions regarding expenses leads to obtaining great insights about a company’s operations.
  4. Expensive financing – many entrepreneurs go to the bank believing that having a huge box of invoices is enough to get them a loan approved from the credit officer. Nothing is farther from the truth. Credit officers analyze the whole scenario. They need to know that you are on top of your game and that you know how your cash flow behaves. Not showing up with an update set of financials will make you look like a fool in front of the credit officer… and even if they believe you have the cash flow to service the debt, they will charge several percentage points higher than if you had proper and timely accounting.
  5. Expensive investment terms – Just like reason #3, raising that Seed or Series A round is the same as raising debt. And not having a set of financials, bank statements and all other schedules reconciled will bring up red flags. This will put you and your company in a disadvantage when negotiating terms. You can expect the investor to feel less certain about investing in you, if you don’t have your game on.
  6. Tax planning – I have seen this many times. Clients are making money, but pay as much as 100% more in income tax at any given year, just because they are not taking advantages of tax planning strategies available to them, depending on their industry, structure or financial performance. In some occasions I have sat down with entrepreneurs and identified anywhere from $500 up to $50,000 in savings in just one year. $50K? That’s a lot of money, even for a millionaire.
  7. Monitor Fraud – if you’re not paying attention to your finances, someone will steal from you. It is not a matter of “if”… it’s a matter of “when”.

While I do recommend focusing mostly on your company’s core offering, I definitely believe proper financial recording and bookkeeping is a must for every company out there. And there’s no excuse, there are many accounting systems that fit the profile of all firms. There are a bunch of web-apps that adjust to any type of business (freelancers, manufacturing, service, etc.) and many offer a free trial, if it’s not free. With as little as one hour a week, you can have your books in order. If you are someone that absolutely despises accounting, then hire an outsourced accountant to perform all the accounting functions… You’ll just have to answer a couple of questions a month, in order to clear some doubts. Just make sure that the accountant is performing monthly reconciliations and sitting down with you once a month to go over the monthly, quarterly and annual performance of your firm. This will let you anticipate road blocks, know when to hire for growth, save / protect cash and invest in the right clients and projects.

Make sure you don’t go into ruins because you run out of cash, or worst yet, scare away a great investors that can help you reach your next level… just because you were reckless with your bookkeeping. Invest as little as an hour a week in your accounting, to make sure that you are monitoring everything you need from a financial perspective. “Lean” doesn’t mean cutting on data, lean is actually about following the insight you derive from your data. Data comes from proper bookkeeping, among other things.

Let me know how much of a burden it is for you to manage your accounting! Maybe I can point you in the right direction. If you have a question or comment, feel free to contact me to see how I can help.

 


Miguel Nicolas Moreda, CPA, CIRA

Miguel Nicolas is the founder of Porto Capital. Prior to working as a financial and restructuring advisor for small and medium-sized businesses, he worked at GFR Media Real Estate Division as Finance Manager. Before that, he worked in the Business Advisory Division at Ernst & Young US, LLP in the United States.

He is holds an undergraduate degree in accounting from the University of Puerto Rico. He also possess graduate degrees from the University of Puerto Rico School of Law and IE Business School in Spain. Miguel is a Certified Public Accountant (CPA) and a Certified Insolvency and Restructuring Advisor (CIRA).

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