Good Housekeeping: Bookkeeping Edition
Avoid Death by a Thousand Quickbook Cuts
Since launching, one of the most frequent reasons customers come to Nomad is for what we call "clean-up duty." Founders and their VCs are forced to reach out to specialists to mop up the financial black hole their company or investment has become, and many times this process is incredibly expensive. We have seen all sorts of messes, from expenses on Excel to bookkeeping so sloppy, no one knows whether the company is thriving or near bankrupt. That is why we cannot stress the importance of having regularly managed internal processes that keep your books updated and your cash portrait super accurate.
Listen, we get it. Without a full time CFO or VP of Finance to stay on top of things, it's hard to carve out time for financial housekeeping, especially at the early growth stages when building key features or keeping early customers happy is priority one. However, without knowing your company's financial standing, your priorities may be unfounded.
Trust me, we have personally seen disheveled entrepreneurs that have investors emailing them 3 times a day for overdue quarterly numbers they don't have. We've also had founders call us after realizing they have 6 weeks of runway before they can't make payroll. The situation only worsens when you cannot pay vendors that begin to cutoff service and truly put the business at risk. At that time, financials automatically become your priority and founders start scrambling. (That's where we come in).
But ironically, at this point, it is probably too late. For the long term, you need to raise capital immediately, but without reliable financials, it's impossible to raise. Cue the VCs: write off those losses.
Having outdated and/or inaccurate books debilitates that tight cash burn that founders and VCs love. The opposite ensures vendors and service providers are paid on time, investors feel in-the-know, which cultivates positive relationships. Moreover, and this should not be understated, it builds that "responsible" reputation so that if cash problems do ensue down the line, your record of fiscal responsibility affords you some leeway.
Accordingly, here are some HIGHLY RECOMMENDED processes to repeat regularly that will help you steer clear of that nightmare phone call to Nomad, begging them to be your life raft from financial wreckage.
- Don't wait on using accounting software - start now
- Reconcile your books monthly. With current cloud based accounting systems like Quickbooks Online and Xero that plug into banking and credit card fees, bookkeeping has become easier than ever
- Update your cash burn forecast regularly, and always understand how long you can survive with the current cash in the bank
- Sustain positive relationships with vendors and communicate regularly, so if cash becomes tight you can manage them while you work through more fundraising
- Actively update your investors on your monthly financial results, even if it is just you and a partner