Until recently, Tech Startups enjoy relative freedom from the financial control of venture capitalists who traditionally fund them.
As long as these companies are able to report progress in developing their products and generating a certain level of revenue from sales and software subscriptions, they can burn through millions without having to closely examine their costs.
But this age of laissez-faire is coming to an end. With inflation, rising interest rates and low earnings expectations weighing down tech stocks this year, we may be in for another tech bubble burst similar to the one at the turn of the century.
In this environment, many of the “pie-in-the-sky” companies that angel investors used to flock to are now struggling to survive. Many VC funds are focusing their investments on well-established technology companies focused on solving real-world problems.
Passing annual audits is not enough. Investors now expect these startups to show greater financial transparency. CEOs who once sold themselves as visionaries must also think and act like accountants.
You don’t want to run your business on your bank account, but if you’re a tech company that’s not yet profitable, you need to keep track of your balances.
This means they can’t get away with manually filling out spreadsheets when they have spare time. They must have robust accounting processes and tools to track and report expenses and income in a more accurate and timely manner. And they must maintain accurate records of income and revenue coming in on a monthly, if not daily, basis.
While most startup CEOs have a basic understanding of accounting principles, many lack the training needed to serve in this role, or simply lack the time and interest to do so. But with more VC funds looking to see where every dollar is being spent, it’s critical that CEOs understand how to accurately track and report monthly expenses and revenues.
Step 1: Streamline all non-card payments to one service provider
Use one tool to sync your account platform with any money transfer, checks or ACH payments. Online banking services like Relay Bank or Bill.com are helpful.
You don’t need multiple ways to pay, and you want to use anything that prevents payments from showing up in your books instantly. I will explain further why this is critical.
Step 2: Use credit card expense management services
Many SaaS companies handle large amounts of credit card fees. You’ll want to start using a Div or Breaks card that allows you to segment and spend cards and implement spending limits to help enforce monthly or class budgets.
Amex cards are attractive because of the rewards and points, but they make it difficult to track employee expenses in real time.