Bookkeeping Basics You Need to Know

Working with startups (plus building and managing a few of our own) has taught us that founders and business owners continuously struggle to stay on top of their financial management responsibilities — the most time consuming and important of which is bookkeeping. Your books are the baseline financial record for your business, from which you will draw all insights needed to make strategic decisions. Because of this, your books need to be 100% accurate.

“Your books are the baseline financial record for your business, from which you will draw all insights needed to make strategic decisions. Because of this, your books need to be 100% accurate.” 

Most startup businesses will outsource bookkeeping tasks by hiring a part-time bookkeeper or working with a finance firm. The problem with going that route is that it leads to heavy fragmentation, where you’re now managing multiple platforms and have to communicate across several channels just to get a simple answer.

As such, we’ve experienced these pains first hand:

• The current process is very manual and human intensive, requiring founders to spend a lot of time and energy managing their company’s finances. For example, to check in on your financials, you must log into any number of different accounts to see the latest balances and statements. Then you must figure out a system for organizing and understanding how the various datasets stack up to provide insights into your company’s overall financial health.
• Even when you outsource bookkeeping, you still have to double check your bookkeeper’s work every month. Because even when this process is outsourced, the books are never 100% accurate, given the varying levels of experience, insight, and attention to detail the individuals managing your company’s bookkeeping bring to the table.
• If your company’s metrics change drastically — such as its operating expenses or burn rate — you won’t know until the month’s books are delivered (which usually happens at least two to three weeks into the next month, putting you indefinitely behind). And when you do get the numbers, you’re unable to derive the cause of changes from the Excel spreadsheet you just received. You can see that your burn rate has increased, but now you need someone to pour over the books and interpret the data to tell you why it has increased.
• It’s tax time, and the CPA you deal with roughly once a year suggests further revisions to your books. Because this is a transactional relationship, and not an ongoing partnership, your taxes are never optimized for your business because the tax accountant does not have deep insights into your business.

In order to solve these pain-points, we created a list of four things a modern bookkeeping system and, more generally, a complete financial management system ought to do.

1. Have a system in place to keep your books 100% accurate throughout the year (making it easier to do things such as prepare investor packages, be audit ready, and file your year-end tax return).
2. Bundle all data from various financial accounts into one easy to navigate finance dashboard where the most important insights for your business are available 24/7.
3. Utilize a fast and efficient system to manage receipts, invoicing, bill pay, and other financial functions.
4. Proactively communicate important financial insights in real-time, allowing you to identify and take action on changes to your finances as quickly as possible.