Until recently, tech Startups traditionally enjoyed relative independence from financial oversight from the venture capitalists who funded them.
As long as these firms can report progress in developing their products and generate some level of earnings from sales and software subscriptions, they can burn their millions without closely examining their expenses.
But this laissez-faire era is coming to an end. With inflation, rising interest rates and low earnings expectations outpacing technology stocks this year, we may be in the midst of another tech bubble bursting at the turn of the century.
In this environment, many of the “pie-in-the-sky” companies that angel investors used to flock to are now struggling to survive. Many VC funds are refocusing their investments on more well-grounded technology companies focused on solving real-world problems.
Passing the annual audit will no longer be enough. Investors now expect these startups to demonstrate greater financial transparency at all times. CEOs who once shied away from marketing themselves as visionaries will also need to think and act like accountants.
You don’t want to run your business out of your bank balance, but if you are a tech firm that is not yet profitable, you need to keep track of your balance.
This means that whenever they have free time, they will not be able to avoid filling out spreadsheets manually on an ad-hoc basis. They will need robust bookkeeping processes and tools to track and report expenses and revenue in a more accurate and timely manner. And they need to maintain accurate records of revenue and earnings coming in every month if not every day.
While most startup CEOs have a basic understanding of accounting principles, many do not have the necessary training to serve in this role, or simply do not have the time or desire to do so. But as more VC funds want to see where every dollar is spent, it’s essential that CEOs understand how to properly track and report monthly expenses and revenue.
Step 1: Simplify all non-card payments to one provider
Use a tool to sync your accounting platform with any wire transfer, check or ACH payments that your business needs to do. Online banking services like Relay Bank or Bill.com are useful.
You don’t need multiple methods to make a payment and you want to prevent using anything that prevents the payment from appearing in your books right away. I’ll explain why this is important next.
Step 2: Use services that handle the expense of credit card charges
Many SaaS companies will hold a significant amount of credit card fees. You’ll want to start using a Divvy or Brex card that allows you to split and issue cards by department and apply spending limits to help implement monthly or department budgets.
Amex cards are attractive because of the rewards and points, but they make it hard to track employee spending in real time.