Can you revamp your startup’s financial game with outsourced accounting services?
Startups make our world a better place. There’s something amazing how startups unlock human potential…achieving extraordinary things. Yet 90% of startups fail.
According to the Bureau of Labor Statistics, as of 2021, approximately 20% of start-ups fail in the first year. Behind this staggering statistic lies a myriad of challenges that startups face on their journey to success.
Several reasons contribute to this rather alarming failure rate, but none are more relevant than accounting for startups. As reported by Business Insider, 82% of startups cite cash flow problems as the primary reason for their failure. 29% also point towards running out of cash as a prevalent issue. All of these problems stem from poor financial management and accounting for startups.
Startups often do not have the luxury of hiring an expensive CPA and have to do everything themselves. At the same time, these numbers cannot be ignored. The issue seems clear and easily fixable by bringing robust accounting into the mix.
All that remains is to find an affordable method of implementing robust accounting for startups. Luckily, not much thought is required, as outsourced accounting for startups is just the remedy to cure the ailing startup landscape.
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What is Outsourced Accounting for Startups?
Outsourced accounting for startups entails retaining the services of a third-party outsourced accounting firm to manage the startup’s accounting. Rather than going the traditional route of hiring an accountant in-house and paying a generous salary, outsourced accounting lets startups leverage affordable remote professionals. These remote outsourced accounting professionals serve as the startup’s financial pillar without becoming the reason for its failure.
That is to say, they will not promise you better finances and end up being the reason you run out of cash. That is the unfortunate risk with an in-house accounting solution. Outsourced accounting for startups is designed to subvert this problem and help startups save money and break the curse of failure looming over them.
What is the Importance of Outsourced Accounting for Startups?
Outsourced accounting services are a vital pillar of the modern startup ecosystem. Startups need money to grow and bloom into profitable businesses. Money initially comes from capital investment by entrepreneurs themselves, with the hope of return via startup success and profit. This means that in the first year, startups are primarily focused on saving as much money as possible while spending enough to start generating revenue. Profitability comes later down the road; the first goal is cash management.
In this stage, the cash flow is the main factor that needs to be carefully balanced. The startup cannot overspend and risk going bankrupt. Nor can it abstain from spending and fail due to poor operations. The startup must spend money prudently to develop, market, and sell products while ensuring the cash flow remains positive. The only way to strike this delicate balance is through careful financial planning, budgeting, monitoring, and strategizing.
A sound understanding of finances is a requirement to survive as a startup in 2024. There is very little room for error, and the smallest mistakes can put the startup in jeopardy. This is exactly why outsourced accounting is so vital. It gives the little guy a chance to fight on a level playing field.
For example, a new soda startup cannot hope to compete with someone like Pepsi and its established accounting functions. With outsourced accounting, both companies have access to robust accounting and can compete in other areas. Outsourced accounting gives startups a fair shot at going head-to-head with household industry names.
Benefits of Outsourced Accounting for Startups
Enhanced Cash Flow Management
Outsourced accounting for startups is the perfect solution to the widespread poor cash flow management problem threatening their survival. Cash flow is very sensitive, and must be managed with a subtle yet firm hand to maintain control. Outsourced accounting professionals are the guiding hands that can keep the cash flow under control and keep the startup solvent.
By monitoring expenses and earnings, a professional accountant can deftly advise entrepreneurs on where money can be saved. The key to cash flow management is to spend less than you make. By monitoring KPIs and advising on business optimizations, an outsourced accountant can tidy up operations, improve efficiency, and save you money. All of which contribute to more consistent cash flow and opportunity for growth.
Enhanced Budgeting and Financial Planning
An outsourced accountant can handle budgeting far better than a self-taught entrepreneur. Not only are outsourced accountants more experienced, but they also have the technological resources available for more effective planning. A budget is designed to determine expenses and allocate resources. By fixing up the budget, the business’ expenses will naturally go down, improving cash flow.
Alongside budgeting, accountants can contribute to financial planning. By drawing detailed cash flow projections, as well as financial forecasts, they give unique, invaluable insight into the future. In 2024, accountants are not just there to maintain the books. They have evolved into the financial consultancy role. Their purpose is to use the information in the books to help startups and businesses make informed and sound financial decisions.
Improved Startup Credibility
Startups eventually reach a point where more funding is required for growth. In this stage, the common tactic is to secure investments from investors or take out a bank loan. In either case, the business must be able to show that it is credible and trustworthy. The only way to prove your trustworthiness is to demonstrate sound financial decision-making. No investor will invest in a startup that cannot convince them that their investment will yield returns.
Put yourself in an investor’s shoes for a moment. Would you invest a large sum of money into a business that has unkempt financial records and cannot prove that it will spend the money wisely?
Having outsourced accounting for startups from the start is a game-changer in this regard. A professional accountant by your side from the early days can do wonders for your credibility. A professional CPA can audit the startup regularly to ensure transparency. They can also enhance the quality of financial decisions made, which reflects well on the business and entrepreneurs. Simply having an accountant in the room to answer investor questions is an unmatched benefit.
Regulatory Compliance
Another thing startups may not account for is regulatory compliance. Running a business is a serious affair, with many financial regulations that demand compliance. Whether it be required audits and unique tax obligations or more blurry financial situations in the case of e-commerce businesses and cross-border transactions. All of these regulations need to be complied with if the business wants to avoid financial penalties.
Outsourced accounting for startups brings safety and stability. Entrepreneurs can sleep a little easier knowing that their operations are compliant with existing regulations. Not only will your outsourced accountant be responsible for maintaining compliance, but also for adapting to evolving regulations. If a new tax law comes out that can prove beneficial for the startup, they can immediately help the business capitalize on it.
How to Find the Right Outsourced Accounting Firms for Startups?
After we have highlighted just how advantageous outsourced accounting for startups can be, let’s talk about finding the right one for the job.
Outsourced accounting for startups is a tricky affair. You need to research your startup’s unique accounting needs and based on them start looking for providers. There will undoubtedly be some subpar organizations and fraudulent firms that will cross your path. The key is to always inquire about their licensing and contact past customers for verification. After that, it boils down to meeting up with whoever is in charge and seeing if you can negotiate a mutually beneficial arrangement.
Expertise Accelerated’s outsourced accounting services go one step further, allowing startup owners to schedule a direct meeting with EA CEO Haroon Jafree. Haroon is a veteran CPA with a decade of experience under his belt. Not only can startup owners learn about EA’s services, but also inquire further on the subject of outsourced accounting and what it brings to the table. At EA, our goal is to help you make an informed choice and nurture your startup to its full potential.