Summary of this story
1. Hire a professional bookkeeper from the beginning to avoid bookkeeping mistakes, save some money and time.
2. Finance and bookkeeping are different.
3. Every company’s books are different
4. Allocate your time to grow your company, not the books.
5. Keep business and personal expenses separate
6. Create detailed record-keeping habit from the start if you are serious about your startup
7. If you cannot take care of small things now, you will never be able to handle big things in the future.
While many other accounting and bookkeeping companies are struggling with the pandemic, Hiren’s company in New York City is doing just fine.
“Because they lost access to their physical office,” says Hiren Shah, the founder of Stilz Bookkeeping. “For us, it’s business as usual.”
Though Hiren’s company has been 100% remote for the past 11 years, he used to commute to the client’s office.
“It was tiresome working at their offices,” Hiren recalls. “My daughter was a toddler, and I could not spend time with her.”
That was when Intuit launched QuickBooks® Online. Hiren saw an opportunity to work remote, save time commuting, and spend more time with his family.
He got Quickbooks® certified. Pronto.
Initially, Hiren saw some resistance from the old businesses wanting to stick to the desktop legacy products.
“The cloud bookkeeping was a new thing. There were lots of doubters, and they did not want to make the change.”
In the search for a new client base, he stumbled upon a new territory: Startups.
“Startups were willing to take a risk on the advanced technology,” Hiren says.
Because they were working from their home or neighborhood Starbucks, they preferred to get their books done remotely.
“I was amazed at the work ethos and how the work’s location did not matter; the results and output did.”
Startup cofounders network intensely. Soon, people started to refer to Hiren as Go to person for setting up their books.
Now, Stilz Bookkeeping specializes in startup clients and young at heart businesses.
“We were outliers when we started, and now the rest of the bookkeeping space is catching up.”
As I start my startup, two places technologies, I asked Hiren to give me some advice on bookkeeping.
Here are the 7 bookkeeping mistakes a startup can avoid.
1. Oh, it’s easy. I will do it myself
Many accounting software claims it’s easy to set up and use, but Hiren says it’s a trick to get you to sign up.
Because of the ease of use, many startups keep the books themselves using the default set up. After several months, they are unable to resolve the discrepancies.
“When they approach us, their books are a mess,” Hiren says. “Many clients ended up paying us a lot to clean the books.”
His advice?
Reach out to a certified expert bookkeeper before it’s too late.
“It is much cheaper upfront to set up the books correctly than paying a fortune to clean up the books later.”
Accounting professionals can help your startup set up bookkeeping software modules and tools. They can also help set up best practices and accounting systems.
Takeaway: Hire a professional bookkeeper from the beginning to save some money and time.
2. I have a finance MBA. I know how to do finance.
“No, you don’t,” says Hiren. “Founders with MBAs from Ivy Leagues are experts in reading & deciphering financial reports. But even they get all tied up when it comes to doing the books for their startups.”
It’s a bookkeeper’s job to understand what the accounting platform can do to generate financial reports a startup needs.
It’s a founder’s job to scale the startup. It’s better to leave the books to an expert bookkeeper.
Takeaway: Finance and bookkeeping are different.
3. I worked in corporate with a Fortune 500 company. I handled an accounting function there; I can do my books.
Just because you handled the function of the entire accounting process, it does not necessarily make you an expert in the entire accounting cycle at your startup.
There is a considerable difference between accounting at a Fortune 500 company and your startup.
At a Fortune 500 company, you specialized in one function of the accounting process. It’s highly likely you were part of a team to audit your work or troubleshoot any issues.
At a startup, a well-rounded experience is required to do the books.
Takeaway: Every company’s books are different
4. I got this; I have the time
Granted, when founders are starting with a lot of time in their hands, they obsess over the books.
Bookkeeping is busy work. The more time they spend on the books, they are NOT out there, hustling to take the startup to the next level.
The company may not be big enough to require a full-time bookkeeper or accountant. This is usually an excellent time to explore working on outsourcing the books to an expert.
Takeaway: Allocate your time to grow your company, not the books.
5. Commingle business and personal expenses
This may sound too obvious, but Hiren has seen many startup founders use the business credit or debit card for personal expenses. He advises to keep the business and personal expenses separate; otherwise, the books become too complicated.
There is another reason to avoid mixing business and personal expenses- VCs and seasoned investors do not look kindly upon this.
Takeaway: Keep business and personal expenses separate
6. Overlook keeping proper records.
Founders start a startup because they have an idea. They don’t start a company because they want to learn to account.
But sooner or later, there comes a time when they must seek accredited investors or VCs.
“Accurate financial reports show investors that founders are serious,” Hiren says. “There is no better way to showcase what the founders have been doing.”
Accurate reports can help investors believe strongly in the startup’s idea.
Having proper records is a must for every startup.
How can you keep detailed records?
When I started my business, I kept a receipt for every purchase I made for the business. I kept receipts even when the transaction was for $.50. I asked for a receipt when I was not asked. I kept electronic receipts of all the online purchases in one folder.
After doing this for the last nine years, it became a habit — so much so I cannot purchase anything without asking for a receipt.
Takeaway: create a detailed record-keeping habit from the start if you are serious about your startup
7. I will set up the accounting and financial systems once the revenue reaches $1MM
Here is what Hiren has to say to this:
If you do not have the systems, it will be challenging even to reach 1MM in revenue. I may take longer than you thought.
When you start out you, want the accounting systems to support 1MM in revenue. This helps iron out the glitches and set up SOPs at a lower level of risk to your reputation.
Once you reach 1MM, you want to build upon those existing systems to get to the 10MM.
If you wait to get to 1MM to revenue, the accounting systems will never be able to scale further, and every mistake will be magnified. It is like tuning the airplane when it is flying 30000 ft above the ground.
Takeaway: If you cannot take care of small things now, you will never be able to handle big things in the future.
A Bonus Tip
In what way did Paycheck Protection Program Loan affect how startups do their bookkeeping?
As soon as this was announced a lot of startups who did not have their books updated were caught unawares.
They did not have the data to apply for the loan. We signed clients whose books were off by a few months. But there were some whose books were backlogged by 6–12 months, we could not help them. Many of those could not apply initially and had to lay off employees and the founders had to do with a reduced paycheck to conserve cash.
Many startups did not have the processes in place to get updated financial reports. They took the revenue of the various platforms like Salesforce but never had a full picture of their costs side.
They struggled to determine their team costs to find out where to trim them.
As an afterthought and going through the Covid-19 crisis, many founders that I speak to have realized the importance of keeping the books updated every month if not weekly to get neat, clean, and accurate financial reports to be used for actionable tasks.
If you’d like to contact with Hiren, please email: service@stilzbookkeeping.com
Source: Medium