Until recently, tech start-ups traditionally enjoyed relative freedom from financial oversight by the venture capitalists who funded them.
While these companies could report progress in developing their products and generating some level of revenue from sales and software subscriptions, they could burn through their millions without having to endure close monitoring of their costs.
But this era of laissez-faire is coming to an end. With inflation, rising interest rates and lower earnings expectations crushing tech stocks this year, we may be in the midst of another bursting tech bubble similar to the one at the turn of the century.
In this environment, many of the pie-in-the-sky companies that angel investors flock to are now struggling to survive. Many venture capital funds are shifting their investments to better-founded technology companies focused on solving real-world problems.
Passing annual audits will no longer be enough. Investors now expect these startups to demonstrate greater financial transparency all the time. CEOs who once emerged from marketing as visionaries will also have to think and act like accountants.
You don’t want to run your business through your bank balance, but if you’re a tech company that’s not yet profitable, you need to keep an eye on your balance sheets.
This means they will no longer be able to get away with manually filling out spreadsheets on an ad hoc basis when they have a spare moment. They will need to have robust accounting processes and tools to track and report expenses and income in a more accurate and timely manner. And they must keep accurate records of revenue and profits coming in every month, if not every day.
Although most startup CEOs have a basic understanding of accounting principles, many do not have the necessary training to perform this role, or simply do not have the time or desire to do so. But with more VC funds wanting to see where every dollar is being spent, it’s essential that CEOs understand how to accurately track and report monthly expenses and income.
Step 1: Streamline all cardless payments to one provider
Use one 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 payment methods and want to prevent using anything that prevents payments from showing up on your books immediately. I’ll explain why this is critical later.
Step 2: Use services that control the cost of credit card fees
Many SaaS companies will hold a significant amount of credit card fees. You’ll want to start using a Divvy or Brex card that allows you to segment and issue cards by department and apply spending limits to help meet 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.