There’s an issue a lot of startups face – accounting cleanup. While it might not sound like the most exciting topic, it’s one of the most important areas that can impact your startup’s future.
Unfortunately, we’re experts in accounting cleanup because we get a lot of clients who come to us after realizing something’s wrong with their books. They may not be sure what, exactly, is off, but they know something feels “off.” Often, they’ve worked with an accounting firm that might have seemed like a good fit at first, due to a slick sales pitch, promises of automation, or low pricing. However, as time passes, the cracks start to show. Maybe the books are messy, transactions are missing, or things just don’t add up.
It’s a little like going to the doctor – you may not know exactly what’s wrong with your health, but you’ve got a feeling that something’s not right. It’s the doctor’s job to diagnose the problem and recommend a course of treatment. The same goes for accounting. It’s our job to diagnose the issue, clean things up, and get your books in order so that you can move forward with confidence.
The true cost of “cheap” accounting services
A lot of times, we see companies that started out trying to save money by doing accounting themselves or working with a non-professional provider. Maybe it was a cheap bookkeeper they found on Craigslist, or a firm that promised they could handle everything for a fraction of the cost, or a vendor that said that their automation would magically do everything. But when things get messy, these savings can turn into a major headache.
One important point entrepreneurs should understand is that, in the long run, you may end up paying for poor accounting twice – once to the service provider who did a subpar job, and again to us to clean up the mess. And guess what? It might actually be more cost-effective to do it right the first time with an experienced accounting firm, rather than dealing with the fallout later.
As a founder, your time is incredibly valuable. The headaches, distractions, and potential loss of credibility from having messy books can be a huge drain. It can even derail your ability to raise funds or get investors onboard. So it’s a good idea to invest in professional accounting from the start.
What is accounting cleanup?
When you’re cleaning up your books, it often involves going back in time – entering missing transactions, reconciling bank accounts, and reviewing everything to make sure it matches what’s actually happening in your business.
One of the biggest issues we see with companies that haven’t done their accounting properly is that they don’t actually reconcile their books. Reconciling means tying the numbers in your accounting system (like QuickBooks) to the actual cash in your bank accounts. If your cash and your books don’t match, you have a problem. A lot of accounting services don’t take this extra step, and this is where things can get really off track.
The cash in your bank account is the true record of what’s going on with your business, and it doesn’t lie. You can input all kinds of transactions into QuickBooks, but if they don’t match up with the actual bank statements, your accounting is off. A good accounting firm will ensure that your books are properly reconciled so you have an accurate view of your finances.
Common issues we see during accounting cleanup
Here are a few of the most common problems we encounter when doing accounting cleanup for startups:
- Negative balances on the balance sheet. Your balance sheet should never have negative balances. If it does, something is off, and it needs to be corrected immediately.
- Unreconciled payables and receivables. Another major red flag is when you see huge payable balances that haven’t been marked off, or large receivables that aren’t marked as paid. If you’re paying vendors, but not updating your payables, or collecting money from customers without properly recording the payments, your balance sheet can get seriously messed up.
- Misclassified transactions. Sometimes transactions can be entered incorrectly – for example, categorizing an expense as an asset or vice versa. These misclassifications can distort your financial reports and make it harder to understand the true health of your business.
- Cash flow gaps. If you haven’t reconciled your books, your cash flow statements might not match reality. This can lead to overspending or failing to spot cash shortages before they become a problem.
Getting it right from the start is important
As an entrepreneur, you’re focused on growth. You’re wearing a hundred hats, and accounting might not be at the top of your priority list. But getting your accounting right from the beginning will save you a lot of time, money, and stress down the road.
A clean set of books gives you:
- Confidence. You’ll know exactly where your business stands financially, which helps you make better decisions.
- Credibility. Investors, lenders, and potential partners will trust you more if you have accurate, up-to-date financials.
- Peace of mind. With your accounting in order, you won’t have to worry about last-minute scrambles when tax season comes around, or when you’re raising your next round of funding.
When we work with clients to fix their books, it’s incredibly satisfying to help them get back on track. Once everything is cleaned up and reconciled, they can run their business with confidence. Their team has confidence. Their investors have confidence. And that’s the kind of foundation every successful business needs.
Invest in good accounting
If you’re dealing with accounting issues, don’t ignore them. You don’t have to keep dealing with bad accounting – there are professionals who can help clean it up, and it’s worth it to fix things now rather than letting them get worse.
To avoid accounting headaches down the road, work with a strong, experienced accounting firm right from the beginning. If you feel like something’s wrong, don’t overlook it – reach out for help. A good accounting firm can get your books back on track and set you up for success.
If you have any other questions on cleaning up your accounting, startup investing, or startup accounting, please contact us. You can also follow our YouTube channel and our blog for information about accounting, finance, HR, and taxes for startups!
