Many business owners are concerned about managing startup accounting from the get-go. Running a business can be a challenge, and the need to keep track of your financials on top of everything else is overwhelming, and sometimes, unattainable. Still, it’s difficult to discern if you should do it yourself or if you should hire an accountant or startup accounting service.
If you’re experiencing troubles with your accounting, it may be time to consider a startup accounting service to bring peace of mind. Here are some items to consider when managing your finances and looking to outsource your startup accounting needs.
Common Accounting Issues Startups Face
Cash Flow Issues
You had an idea that has now flourished into a product that is turning a profit. If you haven’t been tracking your expenses and revenue, now is the time to start! Many startups struggle with managing cash flow, whether it’s overspending or dealing with unexpected costs. That’s why it is so important for startups to prioritize accounting from the get-go. You never want to be in the position where you fear not being able to pay your bills or making payroll.
Time and Quality Management
As a business owner or operator, your time is valuable. Many times, startups approach finances cautiously, but somewhat naively. If you don’t know how to do the books, you’re doing your business a disservice by wasting your billable time trying to piece together your accounting while simultaneously sacrificing the quality of your books.
Establishing Financial Goals
In order for potential investors and stakeholders to take you seriously, you need financial projections and the data to support them. If you don’t have the data to back up your claims, you most likely will experience difficulty garnering the funds to grow your business. Additionally, it’s helpful to establish revenue and customer acquisition goals. When you’re first starting out it can be difficult to set reasonable and measurable goals, but setting milestones to aim for is helpful in keeping focused and turning a profit.
Your business has taken off: you have raised significant funding and you see a need to increase your spending. Managing your cash flow, quality of service, and time is now more complicated and imminent than ever. This is a great “problem” to have, but can also be overwhelming. These growing pains may require you to get extra help to manage your finances.
Accrual Accounting vs. Cash Accounting
It can be difficult to know which accounting method is best for your startup, especially in the early stages of your business. There are pros and cons to each method, along with different business requirements. For example, accrual accounting gives you better long-term visibility into your business, while cash accounting reflects your real-time cash situation. It’s important to ensure you’re using the right accounting method to maximize your growth and meet your goals.
Important Startup Accounting Metrics
- Outstanding Accounts Payable
Outstanding accounts payable (A/P) shows the balance of cash you currently owe to your suppliers.
- Average Cash Burn
Average cash burn is the rate at which your business’ cash balance is going down on average each month over a specified time period. A negative burn is a good sign because it indicates that your business is generating cash and growing its cash reserves.
- Cash Runway
If your business is operating at a loss, cash runway helps you estimate how many months you can continue before your business exhausts its cash reserves. Similar to your cash burn, a negative runway is a good sign that your business is growing its cash reserves.
- Gross Margin
Gross margin is a percentage that demonstrates the total revenue of your business after subtracting the costs associated with creating and selling your business’ products. It is a helpful metric to identify how your revenue compares to your costs, allowing you to make changes accordingly.
What Customers Are Saying
ScaleFactor is that live dashboard that does help us make a lot of decisions, but even more importantly than that, to be able to follow up on a month and see what’s most important for us to focus on.”
Benefits of Using a Startup Accounting Software
If you are a business owner and exploring how to best manage your financials, you have options. Whether you’re just starting out or you are looking for a new approach to your startup accounting needs, ScaleFactor provides solutions that will help you manage your cash-flow and make better decisions for your growing business.
The days of tracking and logging your revenue and expenses are over – we’ve got it covered! ScaleFactor’s daily bookkeeping automatically categorizes your expenses for you. Your dedicated account manager is always available to answer any questions you might have about your books.
Forecast Your Future
Use your business and expense insights to see financial trends and draw conclusions about your startup. You can build unlimited scenarios to outline your business’ potential risks and exciting opportunities to help you see into the future of your business and meet your growth goals.
Control Your Cash Flow
Pay your bills and manage your invoices with just a few clicks! Quickly see your cash position at-a-glance on your dashboard, or visit the transaction center for a comprehensive view. Plus, our built-in payroll administration ensures you never miss payroll.
Monthly Financials & In-Depth Reports
Get your monthly financial statements delivered straight to your inbox! In-depth reporting gives you a more detailed view of your financial health. These reports are delivered to you download-ready, so you can use them to present in board meetings, during fundraising, or to apply for a loan.
When contemplating startup accounting, there’s a lot to consider. Keeping track of your finances and trying to make sense of what your bank account is telling you about your business can be tedious and troublesome. Focus your time on the things you love about your business and let us handle the financial logistics. Request a demo today!