Until recently, technology Startups have traditionally enjoyed relative freedom from the financial oversight of the venture capitalists who fund them.
As long as these companies could show progress in their product development and generate some level of revenue from software sales and subscriptions, they could burn through their millions without having to come under scrutiny on their spending.
But this era of laissez-faire is coming to an end. With inflation, rising interest rates and falling earnings expectations hitting tech stocks this year, we could be in the midst of another tech bubble burst similar to 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 venture capital funds are refocusing their investments on stronger technology companies focused on solving real problems.
Passing annual audits will no longer suffice. Investors now expect these startups to consistently demonstrate greater financial transparency. CEOs who once got away with presenting themselves as visionaries will also have to think and act like accountants.
You don’t want to run your business based on your bank balance, but if you’re a tech company that isn’t yet profitable, you need to keep an eye on your balances.
This means that they will no longer be able to settle for manually filling out spreadsheets on an ad hoc basis whenever they have a free moment. They will need to have robust accounting processes and tools to track and report expenses and income more accurately and quickly. And they need to keep accurate records of upcoming income and profits monthly, if not daily.
While most startup CEOs have a basic understanding of accounting principles, many lack the training to fill this role, or simply don’t have the time or inclination to do so. But with more venture capital funds wanting to see where every dollar is spent, it’s critical for CEOs to understand how to accurately track and report monthly expenses and income.
Step 1: Simplify all cardless payments to one provider
Use a single tool to sync your accounting platform with all the wire transfers, checks, or ACH payments your business needs to make. Online banking services like Relay Bank or Bill.com are helpful.
You don’t need multiple ways to pay, and you want to avoid using anything that prevents payments from appearing instantly on your books. I will explain why this is critical later.
Step 2: Use services that control spending related to credit card fees
Many SaaS companies hold a significant amount of credit card fees. You will want to start using a Divvy or Brex card which allows you to segment and issue cards by department and apply spending limits to help enforce monthly or departmental budgets.
Amex cards are attractive because of the rewards and points, but they make it difficult to track employee spending in real time.
Step 3: Record your payroll cost