Until recently, technology startups have traditionally enjoyed relative freedom from financial oversight by the venture capitalists who funded them.
As long as these firms could report the progress of their products and earn a certain level of revenue from sales and software subscriptions, they could burn through their millions without scrutinizing their spending.
But this era of non-intervention is coming to an end. With inflation, rising interest rates and lower earnings expectations hitting tech stocks this year, we could be in the midst of yet another tech bubble burst like the one that occurred at the turn of the century.
In this environment, many pie-in-the-sky companies that angel investors flocked to are now struggling to survive. Many venture capital funds are refocusing their investments on more solid technology companies focused on solving real problems.
Passing annual inspections will no longer be enough. Investors now expect these startups to consistently demonstrate greater financial transparency. Executives who once managed to market like visionaries will also have to think and act like accountants.
You don’t want to run your business off your bank balance, but if you’re a tech firm that isn’t profitable yet, you need to keep an eye on your balance sheets.
This means they will no longer be able to manually fill out spreadsheets as needed when they have a spare moment. They will need robust accounting processes and tools to more accurately and timely track and report expenses and income. And they need to keep accurate records of income and income coming in every month, if not every day.
While most startup leaders have a basic understanding of accounting principles, many of them do not have the training required to take on this role, or simply do not have the time or desire to do so. But as more venture capitalists want to see where every dollar is spent, it’s important that executives 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 sync your accounting platform with any bank transfer, check or ACH payment your business needs. Online banking services such as Relay Bank or Bill.com are useful.
You don’t need to use multiple payment methods, and you don’t want to use anything that prevents payments from appearing instantly on your books. Next, I will explain why this is critical.
Step 2: Use services that control credit card spending.
Many SaaS companies will hold a significant amount of credit card payments. You will want to start using a Divvy or Brex card which will allow you to segment and issue cards by department and apply spending limits to ensure you meet monthly or departmental budgets.
Amex cards are attractive because of rewards and points, but they make it difficult to track employee spending in real time.
Step 3: Write down the cost of wages
Credit: techcrunch.com /