Wednesday, February 12, 2014

Early-Stage Grudge Work: Accounting 101(Modified)

I just spoke with a friend of mine who is launching his startup and had questions about accounting and his chart of accounts.  This is one of the millions of unsexy, unimportant, yet usually urgent things that come up.  (I'll reach out to him to see if it's ok with him if I reference him)  His problem was that he had raised money, and had to figure out what sort of system to spend it in a way that he could account for it.

Clearly, this doesn't really matter because the company succeeds or fails not in this. While I think it's super important to know where your money is going, it's much less so to produce perfect financial statements.   Unfortunately, almost every investor term sheet requires financial statements, as do tax authorities, so you're certainly doing something here.  And, in a small company, it's probably you doing it.

I've always viewed a 'win' in this area when you can get the time down to almost nothing, and still be good-enough, not necessarily perfect.  Many other functions will also fall into the 'good-enough' (payroll, employee on-boarding, document, AP, IT, etc.).  Get it done fast, then focus on the product/market.

My solution is to use an accounting firm focused for start-ups.  They 'get' working with start-ups, do all the set-up so I don't need to be an accounting tool expert, and then I can be a fast user when needed.  Our accounting statements are not 100% GAAP, but are more cash-based and sufficient for the decisions we need to make (e.g., when do we need to raise our next round?  How much did we sped last month?)  This also makes taxes at year-end easy - something else in the good enough category.

Now, get back to the product/market and away from these other things.


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