All entrepreneurs understand that there is a major “chasm to cross” between a startup and a growing, fully-functional company. There are plenty of charts and graphs showing 5 or 7 stages of company growth. Regardless of your framework, we all know its hard work. One of the biggest challenges as you start to gain traction is knowing when to build for the future vs staying lean and nimble. One talented entrepreneur we’ve worked with over the years put it this way:
“You need to decide if you are managing the business you have today or managing the business you hope to have in the future.”
Depending on your outlook and cash reserve, each entrepreneur may make a different decision.
So, what does this have to do with accounting? There’s also a large gap to cross in accounting (along with most functions) while you are growing your business. In the chart below, we detail what we"ve called the Accounting Gap. It’s really the gap that exists in traditional offerings between “bookkeeping” and “high-performance accounting teams”.
It’s clear that we’d all like to have high-performance accounting as part of our organization, but is it worth the cost? Is there a way to bridge between traditional bookkeeping offerings and your own team?
When is high-performance accounting worth the cost?
If you are a couple of founders still working on product/market fit with some ongoing expenses, you shouldn’t increase your burn rate to take care of accounting. Basic documentation and bookkeeping is all you need. We’d actually recommend leveraging some of the great SaaS tools that exist like Quickbooks Online, Bill.com and Expensify.
However, once your cost structure starts to grow more complicated, or you have 3rd party money you need to report on, or you start to have revenue and COGS to account for, you should consider a higher-performance solution. You need a solution that offers clear, actionable reporting, robust documentation and internal fraud protection. You want to invest in enough accounting so your company can stand up to a diligence process of future investors (or better yet, the IPO process).
Be diligence ready, all the time. It’s harder than you think to “catch up” when you decide you want to raise money.
What are the options?
Like most back-office functions, you don’t have to build your own team to get the benefits of high-performance accounting. When you have enough scale, building your own team can add value to your organization. A natural first step for some entrepreneurs is to push off accounting to a bookkeeper or an office admin. This can work as a stop gap solution, as long as cost-structure data and clear reporting aren’t critical to your business success. And frankly, some business models are simple enough that this is a great solution. As a rule of thumb, if you just need accounting to keep you compliant and file taxes, but you don’t get much management value out of the data, then a part-time bookkeeper may be the most cost effective option. Beyond the bookkeeper, there are some options that have recently emerged. There is a growing group of innovative accounting services firms that are filling this bookkeeping / accounting gap, like CoEfficient Services. We’ve taken a service level that was historically only available to companies with corporate accounting teams and productized it for smaller companies. We start with the reporting small companies need to make decisions, then build processes to efficiently service our clients in an accurate and safe manner.
We’ve built our service around three needs of a business owner:
- Clear, actionable financial reporting
- Efficient, web-based documentation to always be “diligence ready”
- Robust fraud protection
High-performance accounting isn"t for all companies, but if you need it, we can help.