Growing technology businesses and raising capital go hand in hand. Unfortunately, landing that great round of funding and crappy books do not. Your friends, family, and even that angel investor may have been willing to go off your pitch and spreadsheets alone, but as you ask for more money, the diligence will go up. Do you really think you can do your own accounting and be investor ready with the deep diligence to come? It might be time to outsource your accounting.
Improper Accounting = Low or No Funding
Ask yourself these questions about your own books (if you don’t, the investors will):
- How long is your cash cycle?
- What’s the average first year value of a customer?
- What’s the average lifetime value of a customer?
- Are you properly recognizing revenue?
These questions can be easy to answer if your books have been properly managed and maintained. If not, getting good answers can take days or weeks. It’s more than just dumping transactions into your ledger, it’s about knowing which accounts to assign the transactions to, what journal entries
Investor Ready vs. Functional Financials
If your business if growing successfully, you have functional financials. They may not be efficient or effective, but you’re doing enough to keep the doors open. When investors come knocking, functional financials are not enough – they want audited financials. How do you know if your financials are audit ready? Here are a couple of good questions to ask yourself:
- Has revenue been booked and recognized properly?
- Are you capturing all expenses?
- Have owners and investors equity been properly represented?
Cap Table Cleanliness
“Show me your cap table” is the common refrain from investors after interest increases. If you haven’t done what’s needed to keep it accurate, be ready for a world of pain that can involve early investor resistance, founder drama, and lawyers. Are you confident in your accounting of the cap table?
Summary
Being investor ready with your financials comes at limited cost when your accounting is done right, but doing accounting right isn’t easy. If doing your own accounting is giving you a headache, it’s time to consider outsourcing your accounting. If reading this article is giving you a migraine, it’s definitely time to outsource your accounting.
