Start-ups are often defined by innovation, youth, hardworking staff and long hours. Decisions made early on can have tremendous impact on the eventual success of the business from staffing, target customer, how much to put into marketing vs. product to the very name of the business.
Yet, because start-ups are often focused on building product or awareness rather than revenue, what often gets neglected is the accounting software. With no customers, no product and no revenue, start-ups understandably don’t put a lot of emphasis on issues like accounts payable, accounts receivable and invoices. Even when a business does start to make money, the accounting requirements begin small and don’t require much sophistication. Basic software packages make it easy to track sales, expenses and to file a Form 1040 with a Schedule C attached.
However, some start-ups, notably those with big Series A funding from venture capital firms or other swell capitalized businesses that are pushing for rapid growth right from the outset and confident that the growth will happen, invest in more robust systems right from the beginning. Rather than tracking sales, expenses, customer returns and margins with spreadsheets or entry-level accounting software, they invest in an ERP system right from the beginning. These need not be large installations of SAP either. Today’s cloud-based, SaaS-enabled accounting software systems allow businesses to begin with basic financials and accounting and quickly and easily add users and functionality like inventory and order management or customer relationship management as the business grows. This allows start-ups to react quickly as business grows or new opportunities arise, such as new markets or a chance to pivot the product or service based on market conditions.
Waiting Until it’s Too Late Can be Costly…or Kill Vital Momentum
That can make a big difference when the business does hit an inflection point. Businesses that hit it big, whether that’s a mobile app, software solution, consumer product or financial product, quickly realize the limitations of entry-level accounting software like QuickBooks or Sage. Things like payroll, monthly close or simply visibility into business operations can become a nightmare when spread across Excel spreadsheets. At a time when start-ups should be pouring funds back into the product or into marketing to capitalize on their newfound success, they find their accounting software unable to keep up. The finance team is scrambling to consolidate financials, manually entering data into spreadsheets and arguing over whose numbers are correct. Given the pace of modern business, the ability to capitalize on success is vital, particularly to young companies that may not have the capital or loyal customer base to fall back on should the business stall or need to pivot.
Point Solutions Lead to Comprehensive Problems
What’s worse is that, as start-ups scramble to deal with their sudden growth, many bring in multiple, point solutions focused on specific departments that provide a momentary lift but only push problems further down the road. When HR, sales, finance, inventory and management are all accessing important data from different silos, it becomes nearly impossible to gain a real-time view of critical business issues. The result is a hairball of applications requiring costly and cumbersome integrations, many of which break when the software goes through an upgrade. This approach can also be costly for start-up organizations that more likely want to be investing their money in engineering, sales, marketing or other important areas of need.
IPO Preparation Can Reveal Accounting Software Shortcomings
For many start-ups, the flaws in their accounting software begin to manifest as they approach one of the most important steps in the growth of any young business—the initial public offering. In the run up to an IPO, investors and banks require extensive audits into cash flow, operations, access to financial documents and more. While companies have gone public providing the necessary documentation via spreadsheets, it is far from the most effective or accurate approach. In fact, many investors take great comfort in knowing that a start-up has a full-fledged ERP system in place before IPO preparations even take place. Indeed, familiarity with some of the existing cloud ERP systems by auditors and investors can sometimes speed up the IPO preparation process.
Start-ups Turning to Cloud ERP
In recent years, some of the most successful IPOs have been done by businesses running cloud ERP systems like NetSuite. An investment in a cloud-based, multi-tenant, comprehensive ERP suite early on eliminates many of the hassles and challenges associated with entry level accounting packages or spreadsheets. There are no high upfront costs for hardware, servers, data centers and IT staff to support it. The cloud vendor handles all of that. Additionally, software like NetSuite’s, which is used to support everything from small start-up operations to large global organizations can scale as the company grows. The business can just add licenses as it adds staff and, because all that’s required is an internet connection and a browser, it’s easy to open new offices, subsidiaries or allow people to work remotely.
Moreover, a full suite of applications like NetSuite’s means start-ups can turn to one provider for inventory management, order management, CRM, professional services automation, human resources management, adding modules as needs arise, thereby avoiding the hairball.