Startup Accounting Advice: 7 Tips from a Fractional CFO to help startup companies

In need of some startup accounting advice?

As an outsourced accounting firm, we have a team of financial experts who understand the unique needs of the startup industry. We can handle everything from the bookkeeping, general accounting and producing monthly financial statements, while also stepping in to provide startup accounting advice from a CFO perspective.

startup accounting adviceJustin Atneyel, Regional Director of Plumb – Orange County and Los Angeles is a Fractional CFO for the startup community.

These tips are brought to you by Justin Atneyel, a Fractional CFO, working with startup companies in technology, ecommerce and the product innovation space.  He has a diverse background with accounting consulting experience from inside and outside startup firms. Recently, Justin was recognized as one of the best outsourced CFOs in Orange County – learn more.

Startup Accounting Advice: 7 Tips to Help Startup Companies Be More Prepared

#1 Build relationships with the right advisors and financial institutions that will support you from the beginning

Before you navigate the hardships that starting a new business can create, it’s integral to have a team of professionals by your side.  These should be your banker, attorney, CPA, mentor and CFO. Each of these professionals have a unique vantage point, so keep this in mind when they give you startup advice.

We highly recommend you secure these relationships before you even begin to draft an accounting process. If you don’t know where to start finding these professionals, there are many directories and organizations that are dedicated to helping startups.  Justin is an advisor and sponsor of the OC Startup Council for example.

#2 Create a clear divide of your personal and business expenses

The corporate veil is real.  You do not want to find yourself on the wrong side of it.

Always make sure there is a clear divide between your personal expense activity and your business expenses. We don’t recommend that you use your business credit card and go shopping for your next tech gadget while recording it as a business expense.

#3 Setting up your business entity

One of the most common issues that we see as an outsourced accounting firm for startups is that new owners think it’s okay to run a business out of their personal credit card.  By not setting up the proper legal entities for your startup, you can put your personal assets under risk.

Read: How to Create and Set Up a Business Entity

#4 Choosing the right accounting software for your startup

Step 1 – do some research or ask your network for advice (see tip #1). Not all accounting software is created equal when it comes to early stage companies.  It depends on your specific industry and needs. If you want to save money in the long-run, spend some money upfront by hiring an advisor who can help you determine the right software.

For example, SAAS or e-commerce companies have their own set of revenue recognition principles and nuances in the accounting software world.

Also consider the future of your business and what type of financial reporting will be beneficial to the startup’s stakeholders.

Why does all of this matter?  Consider these questions: Are you trying to raise money? Sell your startup? Do you want to understand how exactly your business is doing? Do you need to stay compliant and reduce your costs for CPAs and tax advisors?

Lastly, have you ever been through a software conversion or implementation? Let’s say, it’s not fun and it’s always expensive.

#5 How to setup the proper accounting controls for tracking expenses

What is a Control System?

Accounting Control System: Methods or procedures that form the complete internal control system of an organization. This system is concerned with (1) ensuring compliance with accounting policies and procedures, (2) protecting the organization’s assets and (3) preparing reliable and timely financial reports.

From an accounting aspect, control systems and processes are very important. You need to put them in place and understand them prior to scaling your startup.

Stories from the field:

Software-As-A-Service (SAAS) Company implemented QuickBooks Online to run their startup. After two years in operation, they have over 1,000 active subscriptions, but realized that QuickBooks Online doesn’t support ASC 606 revenue recognition.  Now they cannot properly accrue revenues as needed.

Distribution company was operating on a cash basis, so all their numbers looked good on paper, but they were not hitting their revenue targets.  However, when the time comes to decide to raise money or sell, the “other side” is not scrutinizing their financials or negotiating multiples because they did not have their control systems in place. 

So what can you do?

Here is our startup accounting advice.  Make sure you communicate your goals with your team (from tip #1) and CFO. This way you can setup the proper systems and processes from the beginning to ensure long term success. When the time comes to raise money or sell, the extra work you spend researching software and implementing appropriate accounting processes will really pay off.

#6 Managing business expenses

You will hear these terms a lot during your startup experience:

  • Runway
  • Burn Rate
  • Cash flow

The biggest culprit for startup failure is getting the product-focused founder to step away from his project and take a holistic view on how to get his product or services in the market and making money.

Financial forecasting is key.  Make sure you create a two or three year forecast on exactly what it will take to get your product or service into market. Simply go one line item at a time, and give realistic measures on what you will need to get this idea off the ground.  And, when in doubt, see tip #1 – this is where your team of experts can help.

#7 Understanding your contracts and equity

As a startup entrepreneur myself, this is one of the most important pieces of advice that I had wish I received.

If you are raising money with family members, create a contract and have your personal attorney (who is representing YOU) review it.

If you are getting funding from a VC firm, make sure your CFO and attorney review the terms.  This is where it is most helpful to have a team of advisors who are familiar with the startup industry.

If you are negotiating equity with partners, or future partners or VC/PE’s – do the same as above.  Have an experience CFO and business attorney review all contracts before you sign them.

Why does this matter?

As a Fractional CFO for startups, many times being brought into companies too late,  I have unfortunately witnessed founders get outsmarted or manipulated by investors and family members.

Always make sure you have an attorney lined up who is on your side, so they can review all documents and agreements prior to signature.

Schedule a free consultation with Justin – book a time on his calendar:

Getting Accounting Help for your Startup

We offer outsourced accounting solutions for your startup company.  Since time is one of your most limited resources when starting a company, we provide accurate and up-to-date reporting, so you can make informed decisions. There is also a cost savings by hiring an outsourced accountant for your startup.

Here are some of the services we offer:

  • Fractional CFO
  • Cash flow planning & analysis
  • Preparing financial statements
  • Financial modeling and budgeting
  • Investor and board communications
  • General bookkeeping

Ready to take the next step?

Get additional startup accounting advice from Plumb. We offer an initial free consultation.

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