Though it’s natural for management to focus on its profit-making areas, the importance of a sound accounting foundation to support the operation cannot be overemphasized. The more diligent and meticulous your accounting team is, the more easily the rest of the organization can function and grow. If the system you currently have in place is relying on charts of accounts that are sloppily maintained and leading to delays or penalties regarding tax liabilities, that’s where your initial attention needs to be placed. Focus on the chart of accounts first, no matter how tempting it is to worry about the fees and penalties that you’ll be liable for in the meantime.
Experts are clear and unified on the importance of getting accounting basics straight before worrying about the other details, even if those details cost money in terms of penalties. This is especially true for start-ups, for whom the penalties incurred will be low during their earliest days. They believe that it is worth it to take the time to fix the accounting foundations of the business first, because it makes compliance and adhering to regulations later, when it will be even more important, easier.
According to Ben Murray, founder of the SaaS CFO and former CFO of Mobile Solutions and Cartegraph, the time to get your accounting house in order is before your business’s annual recurring revenue reaches $3 million, and in a recent Airbase webcast, the founder of Three Butterflies Consulting, Lisa Slater, echoed that opinion. “It could be you might have some sort of late fees and penalties if you haven’t been [correctly filing] for a couple of years, but you can work that out. Those fees and penalties at an early stage are not all that high,” she said, but later on, when the company is more successful, systems that are still sloppy will be unable to pay bills, generate invoices, or perform other functions as smoothly as is needed for growth.
Murray published an analysis in SaaS Brief in which he suggests that every company’s accounting team should be able to achieve a minimum of a soft closure of their books within five days, with every essential document reconciled. This includes major balance sheet accounts, with sub-ledgers for the particularly crucial accounts that include deferred revenue. Calling accounting “the foundation for good decision-making, he says that a solid finance group won’t need to wait until the end of the year to have the numbers ready for commissions, rent or bonuses – they should be able to reconcile all accruals and accounts and be in good standing with regulatory and tax officials.
Slater encourages accounting teams to establish a predictable monthly routine that is adhered to like clockwork. “From the beginning, have this regular weekly, monthly cadence that enables you to stay on top of everything,” she said. “When you keep going with it, it’s so much easier to grow from that foundation.” Not only does it provide solid and predictable results, but makes dealing with audits and eventual late-stage capital raises much less stressful. “Having a clean start from the beginning really pays for itself,” she says. If need be, she encourages companies to bring in consultants “so you’re ready for that scrutiny of going public and your company’s systems and processes and financials are ready.”
Another smart move is reading yourself for growth by moving beyond basic accounting tools like QuickBooks and adding more advanced applications that will help your team address all of its functions. As your organization grows, these financial platforms can be invaluable for planning. So too will your accounting team’s understanding of the company’s products and services, so be sure to have them interact and engage with other critical functions of the company. The more understanding and familiarity there is between the product or service side of the company with the financial and accounting functions, the more collaboratively and successfully your organization can move forward.
If you are in need of an accounting clean up, feel free to reach out to our office for details on how we can set you up for success.