Here’s a scenario that might sound familiar: You’re running your first startup and everything is going just as you planned. But just when you thought you were doing everything right, you realize you need an Income Statement, a Cash Flow Statement, a Balance Sheet, and half a dozen other financial reports to show your investors. Panicked, you go on Facebook write an all-caps status asking if anyone knows how to find a bookkeeper ASAP!
There’s a reason this story is so relatable and that’s because no one thinks about how to find a bookkeeper until they really need one. And it’s understandable. Being an entrepreneur is a 24/7 job and tackling the books is generally a low priority when you have a thousand other tasks that require your attention.
However, raising money or going to the bank for a loan is inevitable if you want your startup to grow. And part of fundraising means getting your back-office in order so that you can show lenders that your business is indeed viable and that you’ll be able to pay them back.
The best course of action is obviously to think about hiring a bookkeeper before you need one. But how do you find a bookkeeper when its the last thing on your mind? It is possible, you just need to ask the right questions.
Before Your Google “How to Find a Bookkeeper”
While your first instinct may be to Google “bookkeepers in [insert your city],” this isn’t always the best approach for startups. Sure, there are plenty of bookkeepers out there, but if they usually work with small businesses like cafes or dental offices, they won’t necessarily understand the needs of your tech startup.
Believe it or not, your startup has very distinct bookkeeping needs so you’ll need to know what you’re looking for before you say “you’re hired!”
Freelance or Firm?
When it comes to hiring a bookkeeper, you generally have two options: freelance or firm. A freelance bookkeeper will usually work with you one-on-one to get your books done. Freelance bookkeepers are generally a one-woman or one-man operation that can work online, in-person at your business, or both.
While freelance bookkeepers are often a cost-effective solution, the drawback is that their level of technical skill and experience can vary wildly. Therefore, a freelance bookkeeper may only be a good fit if you’re in the very early stages of building your startup and have few employees or business expenses.
On the other hand, you can choose to go with a bookkeeping firm. While bookkeeping firms will generally charge more than a freelance bookkeeper, they offer some “assurances” that solo bookkeepers can’t. For instance, firms have the staff and resources to handle the needs of growing companies. In other words, you’ll never outgrow a bookkeeping firm as they can easily adapt and devote more time to your business as it scales.
Bookkeeping firms also offer some added benefits, such as increased security when it comes to handling your financial information, as well as access to a robust tech stack. If you’re a startup that is growing rapidly and has monthly expenses north of $10,000, the extra cost of hiring a bookkeeping firm is often worth it for the added security and the advantages of cloud bookkeeping.
Paper or Digital?
Once you’ve determined whether to use a freelance bookkeeper or go with a bookkeeping firm, now is the time to examine their process. When it comes to bookkeeping, there are generally two ways of doing things: paper or digital. The former often means collecting all of your physical records and either going over them in-person with your bookkeeper, or shipping the records to the bookkeeper’s office.
While it’s fairly easy to find freelance bookkeepers who work well with paper-based recordkeeping, the drawback to this process is that you will not have immediate access to your files. In other words, you’ll need to meet with your bookkeeper any time you need access to your financial information. For growing startups, paper-based recordkeeping is generally not a scalable bookkeeping solution.
In contrast, working with digitized records is preferable for most startups—particularily those in tech. This generally means using cloud-based accounting technology to send, receive, and access any financial information. The advantage of a digital bookkeeping process is instant access to your financials on the go. Even if you’re unfamiliar with accounting software, most bookkeeping firms can help with program setup and streamlining the process to fit your needs.
The Basics or More Specific?
Beyond the bookkeeping process, you’ll want to know what your bookkeeper offers. While it may seem like bookkeeping services should be fairly straightforward, not all bookkeepers will produce the same financial reports for you. For instance, most bookkeepers offer the following standard financial statements:
- Income Statement (also known as a Profit and Loss Statement)
- Balance Sheet
- Cash Flow Statement
These three financial statements are standard, as each necessary to better understand the financial health of your business.
However, as your startup grows, the basics may not be enough. As you raise money from investors or apply for grants, you will likely need a whole host of other financial documents from your bookkeeper. For instance, you may need financial statements such as a:
- Statement of Changes in Shareholder Equity
- A Capitalization Table (“Cap Table”)
- Sources and Uses of Funds Statement
While the requirements will vary based on the situation, it is important to keep in mind what kind of reporting you’ll need from your bookkeeper as you grow. While the basics may be enough for right now, think about what you may need for specific grants or to appease certain investors, and make sure your bookkeeper or bookkeeping firm will be able to accommodate your requests.
With the above in mind, picture this scenario. You know you’ll be fundraising in the next few months, so you start looking for a bookkeeper in advance. But instead of simply Googling local bookkeepers, you research bookkeeping firms that specialize in startups and ask questions about how these firms can meet your specific needs.
Sounds a lot less stressful than crowdsourcing Facebook or last-minute Googling, don’t you think?