Set up financial operations to support your company’s growth.
Some successful startup companies set up robust finance and accounting policies, procedures, and systems from the beginning, keeping their end goals in mind so that finance can seamlessly scale with the rest of the business. But many neglect accounting and finance operations, and focus all their energy on traditional startup concerns: product market fit, go-to-market strategies, and raising initial capital.
The problem is that as companies grow, they accumulate a lot of data, and the information associated with myriad transactions, contracts, payables, and receivables can be difficult to manage, especially when combined with ill-planned decisions about how to account for those transactions. The lack of a strong finance and accounting foundation can end up slowing a company down, and syphon finance resources into bookkeeping fire-fighting drills and data/documentation wrangling, instead of more valuable strategic planning activities.
In a recent 20-Minute Tales from the Frontlines of Finance session, we asked Lisa Slater, founder of Three Butterflies Consulting, to lay out best practices for building a strong finance and accounting foundation from initial seed to IPO. We wanted to get information on how to execute a proper set up, and also how to communicate the importance of investing in this work with founders. Perhaps the most compelling case to be made to any early-stage founder is that clean financials are necessary for any fundraising efforts needed to support company growth. Lisa shared the processes her consulting firm goes through when guiding early-stage companies on best practice finance and accounting set up.
1. Ensure accounting practices form a solid foundation.
“The foundation of financials is a robust, meaningful Chart of Accounts,” she explained. When working with a company that already has accounting processes in place, she starts with a thorough review to ensure GAAP has been followed to date, and that all financials are substantiated with supporting schedules and documentation, including all documentation related to monthly closes. Many startups rely on accounting systems such as QuickBooks Online in the early stages, so she reviews the QBO settings to see if the account code numbers have been turned on, instead of using descriptive accounts, and if classes and locations have been turned on.
“If the Chart of Accounts isn’t set up correctly, it’s really hard to see the woods for the trees. It’s hard to even file any regulatory reporting. If you don’t have it right, it’s hard to do other functions correctly.”
Any finance team that anticipates migrating to a more robust accounting system one day, such as Oracle NetSuite or Sage Intacct, needs to think ahead when setting up the Chart of Accounts. Waiting to redo the Chart of Accounts’ structure at the same time as the migration can be a massive undertaking, so it’s best to focus on it before getting to that point.
In Lisa’s experience, once companies hit Series B funding rounds and beyond, or face their first audit, they start to really see the benefits of having taken the time to build this foundation. Companies are particularly grateful for the time they invested in documenting all policies and procedures.
2. Establish good habits.
“Good financial habits within a company need to be established at an early stage so it doesn’t become overwhelming,” said Lisa. Good habits can be summed simply: keeping everything neat and tidy, and stored in one place, including:
These may seem like small things at the beginning, but if they’re ignored at the start, they can become overwhelming when company growth accelerates. Lisa also evaluates if the best systems are in place to support growth, including those for onboarding vendors correctly and closing financials in a timely manner every month. Are personal finances separate from company finances, with transparent reimbursement policies in place? In the busy early stages, these points can be overlooked. Downstream, however, the repercussions can negatively impact revenue, since company founders’ attention will be pulled away from innovation and growth.
Consistent finance procedures impact more than the finance team and the founder. Good habits and housekeeping set the tone for the company and everyone who subsequently joins. To maintain a culture of efficiency, Lisa recommends calendarizing important tasks at the very beginning in order to establish regular cadences for tasks like processing invoices or approvals. If you set reliable schedules at the beginning, you are more likely to stay on top of everything. “It’s so much easier to grow from that stronger foundation,” she said.
3. Work with the experts/resources when needed.
As companies move through different stages, the resources need to shift. Slater’s consulting company specializes in the early stages, but companies in the pre-IPO stage may want to consider a larger consulting firm to get ready for the scrutiny that comes with going public, Lisa noted. This includes a rigorous audit by an outside firm. She noted that it’s very valuable to establish a good rapport with a really good audit firm who can play an advisory role when questions arise. “I think of accounting and finance as a team sport.”
Many growing companies increase headcount rapidly. In those cases, assistance in understanding the value of good onboarding procedures is important, particularly with a distributed workforce. Having employees in other states or countries raises issues around taxation, for example, in which case a tax advisor may be necessary.
Most companies with seed funding start out with QuickBooks Online or Quickbooks Desktop, but Lisa noted that as size and complexity grow, they need to evaluate the right time to migrate to an ERP. She also recommends an HR platform like Gusto or Rippling to help establish good payroll practices, and Carta for a clean cap table from the beginning. We were pleased of course to hear Lisa list Airbase as part of that foundational tech stack, and she implemented it at her previous company.
For early-stage companies excited about innovative products and market fit, good financial practices might seem like an afterthought. Lisa explained that finance team members help get others to understand the importance.
“Just like, as finance people, we need to show an interest in the product or service the company is delivering so we can do our job correctly. Founders who show an interest in finance and operations from a high level enable the company to grow more easily. And that will help set the company out for success for years to come.”
That advice will make sense to any young company.
Airbase offers a one platform solution to manage all non-payroll spend. It provides oversight and control over spending with real-time reporting and automatic syncing directly to your general ledger. Control all payments – physical cards, virtual cards, ACH, and checks – from one place. Close faster. Empower employees. Control spend.