During the initial stages of setting up a startup, owners are busy budgeting for every single thing, stretching whatever funds they have, and cutting costs left and right. One of the many ways startups reduce their expenses is by managing their own finances and accounting. However, this only makes sense if you or one of your co-owners is an experienced accountant. Otherwise, this cost-cutting move could negatively affect your startup’s potential growth. But is there an alternative?
Outsourcing your Accounting and Financing Tasks
A more cost-effective way of saving money is by outsourcing your financing and accounting services. This way, you would only have to spend money on the specific work you need done, when you need it. But when should you start outsourcing? Although many startups decide to wait, it’s a good idea to hire an outsourced finance department if the following scenarios apply to you:
- You’ve managed to raise a significant amount of seed funding, say around $500,000. If you’ve raised a more sizeable amount, a Series A, or convertible debt seed round, you should certainly consider getting your finances in order with help from a professional.
- Your business expenses are starting to pile up. If it’s becoming harder for you to keep track of all the money going in and out and have hired some employees, then you need accurate and regular financial reporting. This is extremely crucial because you would need detailed reports of your finances to understand your cash flow.
In general, your outsourced finance department would be very helpful with financial planning, getting business licenses, system implementations, incorporation filings, and tracking expenses at the earliest stage of your business. Once your business is up and running, they would be responsible for revenue and month-end accounting, administering contracts, payroll, GAAP financial statements, tracking fixed assets, accounts receivable/payable, tax prep, and regular financial reporting. Also, once you’ve established your startup, they could also help you with pricing, audit prep and support, cash flow evaluations, budget creation, and financial forecasting.
The Bottom Line
Getting a startup off the ground requires hard work and money, and cutting costs might seem like a good idea. However, keep in mind that it would be better for your business to have the supporting account it needs right from the start because cleaning up messy finances would be harder to do later on.