Until recently, tech startups traditionally enjoyed relative freedom from financial oversight from the venture capitalists who funded them.
As long as these firms could report progress in the development of their products and generate a certain level of revenue from sales and software subscriptions, they could consume their millions without having to closely monitor their spending.
But this laissez-faire era is coming to an end. With inflation, rising interest rates and lower earnings expectations plaguing technology stocks this year, we may be in the midst of a new tech bubble similar to the one seen at the turn of the century.
In this environment, many of the “pie-in-the-sky” companies that angel investors flocked to struggle to survive. Many venture capital funds are refocusing their investments on better-grounded technology companies that focus on solving real-world problems.
Passing annual audits is no longer enough. Investors now expect these startups to show increasing financial transparency. CEOs who once got away with marketing themselves as visionaries will also have to think and act like accountants.
You don’t want to run your business on your bank balance, but if you’re a technology company that isn’t profitable yet, you need to keep an eye on your balance.
This means they can’t get away with manually completing spreadsheets on an ad hoc basis when they have a spare moment. They need robust accounting processes and tools to track and report expenses and income more accurately and in a timely manner. And they must keep accurate records of the income and earnings coming in every month, if not every day.
While most startup CEOs have a basic understanding of accounting principles, many don’t have the training necessary to serve in this role, or simply don’t have the time or desire to do so. But with more venture capital funds looking 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: Simplify all non-card payments to one provider
Use one tool to synchronize your accounting platform with all the transfers, checks or ACH payments your company needs to make. Online banking services such as Relay Bank or Bill.com are convenient.
You don’t need multiple ways to pay and want to avoid using something that doesn’t immediately show payments in your books. I’ll explain later why this is critical.
Step 2: Use services that control credit card expense spending
Many SaaS companies will charge a significant amount of credit card fees. You want to start using a Divvy or Brex card that allows you to segment and spend cards by department and apply spending limits to maintain 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.