‘Tis the season. As the days get longer and the weather gets warmer, it’s time to undertake the annual chore of spring cleaning. This doesn’t just apply to your abode. Employing a spring cleaning mentality at your startup — especially when it comes to your books — can do a lot to help you thrive in the rest of 2023 and beyond.
In fact, giving your bookkeeping a spring clean could be the key that unlocks success in your next rounds of fundraising. If you know you’re going to undertake a new round anytime in the near (or not so near) future, it’s well worth putting in the energy to get everything tidied up and organized.
With that in mind, our team of expert tech startup bookkeepers and accountants put our heads together. Here, you’ll find some tips to help you get the most out of spring cleaning your books, especially if you’re prepping for a funding round.
Organize according to GAAP
If you’ve been following our blogs, you’ve probably seen this come up before. GAAP stands for Generally Accepted Accounting Principles. These guidelines come from two trusted sources: the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB). They widely apply to U.S.-based companies.
When your startup is small and scrappy, it’s tempting to manage your bookkeeping according to your preferences (and, in many cases, your available time). But investors won’t be happy if your books don’t look the way they expect. And the vast majority of investors — including VC firms and angel investors — specifically require that the companies they fund adhere to GAAP.
A lot of the guidelines laid out in GAAP are pretty simple if you’re not fudging the numbers. The Principle of Sincerity dictates that your books are accurate and unbiased, for example, while the Principle of Continuity simply says that when you value your company’s assets, you do so under the assumption that you’re going to operate long-term. Easy, right?
The biggest sticking point we often see for startups is the Principle of Periodicity. This dictates that revenue and expenses get appropriately distributed across the applicable time period. If you pay an annual insurance premium, say, this Principle says you would divide it by 12 and apply that expense to each month. Or if a customer pays for an annual subscription, you would record that revenue over the 12 months of the year instead of all at once.
If you want to dig deeper, we talk more about this under the “Fine-tune your expense recording” heading in this blog. Long story short, though, to woo investors, make sure your bookkeeping methods align with GAAP.
Streamline your transaction recording
Speaking of recording transactions, this gives you an excellent place to direct some spring cleaning energy.
How are you tracking things now? If you’ve got stacks of receipts sitting around your office, it’s time to tidy those up. There are so many tech tools available today that there’s just no reason to rely on paper copies of anything.
If, for example, an employee incurs an expense where they get a paper receipt (e.g., they take a client to dinner), plenty of fintech solutions offer functionality that allows them to snap a picture of that receipt, instantly capturing it into your transaction recording tool.
At the same time, these solutions can simplify your transaction organization. Within them, you can establish categories. The tool should automatically sort your revenue and expenses into the proper buckets.
Of course, these tools aren’t perfect. As part of your spring cleaning, make it a point to go through and review the way your fintech tool is sorting. Make sure nothing is getting put into the wrong bucket. While you’re at it, go through and manually categorize anything the tool has left uncategorized. Many tools will get smarter about their automated sorting as you “teach” them how you want things organized.
Setting up processes that keep your transaction recording organized means cleaner, easier-to-read books. And when you hand them over to a potential investor, that can make all the difference in the world.
Integrate your fintech stack
Spring cleaning is the time to tackle those important but annoying to-dos, like cleaning your fan blades and mattresses. The same goes for your startup bookkeeping spring cleaning. Set aside time to tackle those little projects that have been hanging over your head.
We recommend one in particular: get your fintech stack as integrated as possible. If you’re using software for bookkeeping (e.g., QuickBooks Online), make sure all of your bank accounts sync with it. That tool should also integrate with other finance-impacting solutions, like your HR software.
When your stack is fully integrated and all of your data sources are syncing, reporting gets much easier. And that means that if a potential investor asks you for a specific type of report, you can much more quickly deliver on that request with a lot less burden on you and your team.
Hire help if you need it
For some people, spring cleaning is a refreshing reset. It takes a few days or a week and they’re on their merry way.
For others, it’s a daunting chore. Opening up that junk drawer or closet means finding even more that needs their attention.
If you feel more like the second category when it comes to bookkeeping at your startup, it might be time to bring in a professional. Think about a busy, successful individual hiring housekeeping services for their home. Letting a cleaning expert tackle that to-do makes sense so they can free themselves up for the bigger tasks on their plate.
Your bookkeeping is no different. As a founder, you probably have countless irons in the fire at any given time. With bookkeeping services, you can rest easy knowing your books will stay organized. And when it comes time to undertake a new funding round, getting everything spiffed up — and complying with requests from investors — gets much simpler.
Take advantage of this spring season to organize your books. If you need or want some help there, we’re here.