[IMGCAP(1)][IMGCAP(2)]Enabling your startup clients to set up a successful accounting function involves both an understanding of their needs and the ability to tailor relevant solutions to meet those needs.
But you can’t understand their needs if you don’t understand their business. Most people think of startups as technology companies. Sure, that may characterize the majority of startups, but the real differentiator is that a startup is purposely built for fast growth. The ideal lifecycle of a startup often consists of an agile product development, a push for product traction in the marketplace, attraction of growth funding and then rapid growth to attract an exit. This lifecycle is happening on a very condensed time scale, so movement through these phases is much quicker than for a typical small business. Profitability is important, but a startup typically views cash as fuel for business growth, not as an end product for the owners.
How do accounting practitioners help fast-growing startups with accounting support?
Get Them the Right Tools
For startups, that means cloud-based accounting systems like Xero, QuickBooks Online or Intacct. High-growth companies aren’t using dated desktop solutions in their business, so do not put them on an old version of QuickBooks Desktop, even if it’s hosted. While your tax department might prefer to work with older tools that they’re comfortable with, you’ll end up looking dated to a startup.
Newer cloud systems have much better integrations with the existing systems these startup clients are probably using. Introducing a startup client to modern accounting systems demonstrates that your firm is on the leading edge of accounting trends and not a laggard that can’t keep pace with the startup’s growth.
Help Them Build Cost-effective, Scalable Processes
If you believe that the best sets of books are always on a GAAP basis, you’re probably already considered overkill by an early-stage startup. It’s a different story if the startup raises significant rounds of capital and the investors require GAAP. But don’t recommend time-consuming, costly processes unless their investors require it. When helping your clients develop their accounting process, follow the development path that most startups take. The keyword is “agile.” Guide them in building the “minimum viable product” for their accounting function, in the same way that most of them develop their software solutions.
One of your primary goals as their accountant should be to build an accounting function that isn’t a huge distraction. They have a million other things on their plate, so don’t overload the function with processes that aren’t necessary.
Help Them Keep an Eye on Cash
Historic cash flow statements are not very helpful for startups. They’re too busy planning for growth to worry about the past. What are useful, however, are forward-looking projections for how long their cash will last and how much they’re expecting to burn in future months. Forecasted cash gives startups a runway for how quickly they have to get products built, how effective their sales function has to be, how much capital they may need to raise and the timing in which they have to close those capital rounds.
Because startups are intent on growing so quickly, traditional monthly financial statements often don’t provide data in the right amount of time. Focus on the amount of traction in the marketplace is critical, however, so practitioners need to be well-versed in various ways to help startup clients track their growth. Yes, that means getting outside of your comfort zone and recommending customer relationship management systems, dashboard tools and software integrations that can track customer signups and credit card charges. While these are not the typical financial systems that most accountants are familiar with, startups need to be able to look for other reporting metrics that can track growth in real-time.
Tailor Your Solutions to Them
A startup will see very little value in attestation services relative to the high costs, so audits and reviews should not be pushed onto them unless there’s no other way to get past the demands of investors. For the most part, tax returns are typically pretty straightforward for startups as many are in loss positions, so you’ll need to be able to competitively price tax-filing work to be an attractive provider for startups. What will help differentiate you from the competition is having a deep understanding of the tax credits that are relevant to startups. This would include R&D credits, jobs-training credits and economic opportunity zone credits.
Pay special attention to credits that can be applied toward payroll taxes, since so many startups are already carrying net operating losses. And in particular, having a bookkeeping or writeup practice is definitely something that can help startup companies. Because they’re growing so quickly, they often need to outsource this function very early on to stay focused on core growth initiatives. Just make sure that you’re not using your tax staff between busy seasons to handle the bookkeeping. You never know when major issues supporting these bookkeeping clients can pop up during tax season.
If the small business industry is a family, then the startup is the rambunctious little brother—always moving and growing, but difficult to work with. If your firm wants to support a significant client base of startup companies, you need to be able to think and operate like a startup. Up to the challenge? If so, push yourself to build minimum viable accounting solutions that scale with your startups. Be ready to prove that your firm is on the cutting edge of technology changes in the accounting industry and can provide sound advice on the next generation of financial tools.
Kenji Kuramoto is the CEO of Acuity, a technology-enabled startup accounting solution. He is responsible for establishing the firm’s strategic direction and enabling company growth. He offers expert advice and counsels CEOs and business owners seeking thought leadership in the financial operations of their business. Matthew May is a founder and managing partner at Acuity. He is responsible for driving company development, including recruiting, and overseeing firm team members.
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