Bookkeeping, Startups

3 Signs It’s Time to Hire (or Switch) Bookkeepers for your Startup

As an entrepreneur, you have a lot on your plate and you have dozens of competing priorities while trying to grow your exciting new business. If you’re like most founders, bookkeeping is likely at the bottom of that list.  After all, how can you find time to manage your financials when you have to work on sales, product development, capital raises, hiring… the list goes on and on.

We understand that bookkeeping is something that you don’t really have the time, energy, or desire to focus on, but it is an important function to ensure that you can manage your cash and meet your tax filing obligations.  We always advise founders to hire a bookkeeper so that you can spend your valuable time on higher ROI activities that will drive enterprise value as opposed to getting into the weeds on transaction entry.  While it is important you understand and analyze your financials, it is almost always better to have somebody else actually prepare them for your consumption.

Below, we highlight the three most common signs we see that should signal to founders that it is time to hire a Bookkeeper (or switch to a new Bookkeeper).

  1. You lack timely visibility into your financials

    We’ll often see founders that are many months behind on their bookkeeping due to time constraints, or working with the wrong bookkeeping partner.  This results in not having the timely financial information needed to make data driven decisions – especially decisions that will impact cash life. Having up to date financials will ensure that you minimize the risk of inadvertently putting yourself in a situation where you need to take more drastic measures at a later date to repair a prior decision that would not have been made had timely and transparent financial information been available.

    I recall meeting with one new client who believed his cash run rate was $350K per month based on the last set of financials he had reviewed almost 4 months ago.  However, once we started to work together and get the financials up to date, we found that the company’s actual run rate was a little over $415K due to some customer churn and a slight increase in OpEx.  This was a surprise to the founder and it caused him to modify his growth plan to reduce his future burn.  Thankfully, he was able to rectify the issue and get back on track to ensure the company could preserve its cash life, but the entire issue could have been avoided in the first place had more timely financials been available.  If you find you’re frequently “guesstimating” your financial metrics, then you need to upgrade your Bookkeeping solution.

  2. You are unable to produce Investor-ready financial statements with a high degree of confidence

    Investors normally want to see accrual based financial statements with sufficient transparency surrounding OpEx.  This is important for them to ensure that they understand the business.  Unfortunately, many companies, especially early-stage companies, will maintain their financials on a cash basis.  The difference between accrual and cash accounting can be significant.   I’ll illustrate the difference in the revenue recognition example below:

    Transaction:  SaaS company sells and collects an annual subscription for $1,200 on January 1st

    Cash Accounting Treatment:  You would recognize $1,200 in revenue in January as the transaction is recorded in the month that the cash is collected.

    Accrual Accounting Treatment: The company’s revenue would be $100/month over the life of the subscription.  Therefore, the company would recognize $100 in revenue in January, another $100 in February, and so on until the subscription expires in December.

    As you can see, the differences between accrual and cash accounting can be significant.  Investors normally require accrual based financial statements as it provides the reader with a true measure of the company’s financial health and accounts for future committed assets and liabilities.  The problem is that many times, companies don’t have accrual-based financial information readily available when asked by an investor resulting in delays in raising capital while the Company tries to produce the information requested by investors.

    You should have the confidence to be able to produce financial statements from your accounting system quickly if asked by investors, without the need to correct errors or perform analysis in spreadsheets that results in differences from your accounting system.

  3. You can’t maintain tax compliance

    Anyone that has been late in filing or remitting taxes knows that the penalties can be hefty.  If maintaining tax compliance has become a difficult or stressful task, you need a bookkeeper to ensure remittances are made correctly and on-time, to generate financials for your tax accountant to file taxes, and to relieve the stress of tax compliance.   This includes sales and payroll taxes, as that is an area where many companies miss making timely remittances.

There are many other reasons for hiring a bookkeeper, but it boils down to this: if you can’t produce accurate timely financials and have comfort around compliance, you should get a qualified bookkeeper.

BrightIron was created to fill a void and provide startup companies with access to a team of seasoned CFOs, Controllers and Bookkeepers, on a fractional basis. Startups can now access a team of finance professionals at a fraction of the cost, to help them manage the finance function and drive growth in enterprise value.