No one wants to get audited. With our recommendations for the best accounting tools in place, your startup can avoid the headaches of unpaid bills, unauthorized expenses, missing money, and IRS inquiries.
Pilot, QuickBooks, Stripe Checkout, and Ramp are among our suggestions for software to keep your books tidy and the IRS getting the information they need. Below we reveal when and how to pick the right tools for your business and stage, and the pros and cons of each.
Here we’ll cover:
- Bookkeeping: Tracking your financials
- Accounting: Interpreting and presenting your financials
- Accounts payable: Payments to vendors
- Expense management: Employee spending
- Accounts receivable: Payments from customers
This is the last post in SignalFire’s back-office strategy series, which also includes our startup launch guide to incorporation, banking, and equity and our HR guide to payroll, compliance, and benefits. The big takeaway: get these tools in place early. Things only get crazier as your company scales, so it’s much easier to sort them out before you have lots of expenses, employees, and customers to worry about.
Bookkeeping
If you are trying to extend runway as long as possible and keep super lean, you’re typically the bookkeeper, CFO, and CEO rolled into one. Once you can invest here, we recommend getting set up with an outsourced provider for your monthly reporting.
What is bookkeeping?
Bookkeeping is the creation of an accurate record of all your financial activity. Entering all financials into the software you decide to use helps avoid any personal expenses being charged to the company, prevents errors, and organizes everything for your tax reporting, investor due diligence, and cash burn management.
When to bookkeep
Day one. The sooner you start keeping your books, the fewer problems you'll have with your accounting process. Having flexible software decreases your workload and simplifies any financial planning and analysis you want to do with the numbers.
Start bookkeeping as soon as you begin issuing payroll, dealing with expenses, and/or generating revenue. Do not let this get out of hand. We fully suggest outsourcing as much of the bookkeeping job as you can. It is generally not a value add and hiring dedicated accountants early can add back-office bloat. If you set up the right stack of tools, everything will flow seamlessly, and you will only have to answer a few questions each month to complete the books. If you can set up a scalable process at the outset, you can thank yourself in the future.
Bookkeeping suggested vendors
Pilot (our pick): A bookkeeping and tax service that combines software and humans to take care of your accounting and tax back office. They offer a fixed-cost monthly service that does all of the busy work and reaches out to you for questions. Pilot is affordable, will set up the whole stack for you, and will always be on time with reporting. They can also prepare your taxes for an additional fee. Email signalfire@pilot.com for white-glove service with our dedicated team.
Bench: Bench organizes the financials of small businesses, independent contractors, and entrepreneurs. They pair their software with a live bookkeeping team, and they combine the convenience and efficiency of modern technology with the expertise and time savings afforded by a professional service. They use in-house software that makes it difficult to migrate away from as you scale.
Accounting
Record every single detail.
What is accounting?
All of the nitty-gritty finances of your business need to be recorded, and your best options to do that will be the services with the deepest integrations with other software, which will save you time and money on accounting.
Whether you've started or not, make sure to save everything—e.g., documents that include income, expenses, deductions, and credits. These can be receipts, bank or credit card statements, bills, canceled checks, invoices, proof of payments, financial statements, previous tax returns, W2 and 1099 forms, or any documents related to your business.
When to set up accounting
Your accounting system needs to be set up for the first dollar you spend. All of the products we discuss come together in a stack and flow into your accounting software. That software becomes your place of final record and reporting.
Which accounting software to choose
There are many good options and they range from cheap to insanely expensive, and simple to complex. QuickBooks and Xero are very similar products, with pricing between $30 and $200 per month, depending on the package. We find QuickBooks to have the best integrations with other software, which saves you time and reduces errors.
If you grow and have several subsidiaries, lots of complicated overhead allocations, or multiple currencies, we recommend Sage Intact or NetSuite as your step-up choice. These more complex services cost $20K or more a year and are built to upgrade from QuickBooks as your entry-level accounting program. Generally, if you don't need/have a CFO, you can probably get along with Quickbooks.
Pro tip: If you sign up with a bookkeeping service such as Pilot, they’ll set up the necessary integrations with other software for you, saving you a ton of headaches.
Accounting suggested vendors
QuickBooks (our pick): This is the most standard and safe pick of all startup accounting software. Nearly every bank integrates with it, and most accounts use it. You can't go wrong with this choice.
Xero: Xero performs all the same functions as QuickBooks, but has some different features. For example, Xero doesn't automatically add late fees, but it sends payment reminders. It's a little simpler to use, so if you're doing your own accounting, this could be a better option.
NetSuite: If you haven't raised a Series A, read no further. This is for the soon-to-be unicorns. For example, Brex started on QuickBooks but moved to Netsuite after PMF because of its robust accounting approval flows, which are critical for the types of financial control and IT audits it regularly completes.
Accounts payable and expense management
Paying bills can feel tedious, but doing it on time will improve relationships with your vendors. Meanwhile, every corporate card swipe must be entered into your accounting software as the IRS requires receipt tracking if you want to deduct business expenses.
Don't stress: a reliable accounts payable solution to manage your cash flow should do most of the heavy lifting. Additionally, there has been a convergence between bill pay solutions and corporate expense management (credit cards). As a result, we recommend using a single solution here.
What is Accounts payable and expense management?
Accounts payable is the money your business owes vendors and suppliers for purchases of goods and services. Generally, payment is expected by check, wire, or ACH. Accounting and tax rules require accrual accounting for paying expenses before services are provided as prepaid or accruing payables for liabilities.
Expense management refers to the systems deployed by a business to process, pay, and audit employee-initiated expenses—generally by credit card or through reimbursement. These costs can be anything and include things like office equipment, SaaS products, travel and entertainment, and meals/snacks. Most startups will want to adopt a tool to help manage expense claims, authorization, audits, and repayment processes, as that is definitely not something you should be spending your valuable time doing personally.
Pro tip: Being able to reimburse employees for spending their own money out of pocket and process reporting from spending on company cards in a single software will save you time and energy in the long run.
When to find a solution
You'll need an accounts payable solution right around the time you start managing expenses and keeping your books—it might be too late if you wait until the first time you need to pay someone who won't take a credit card. When you and your employees start spending money, it's time to get a system to manage and record that spending.
Accounts payable softwares
The best tools will allow you to reimburse, use a credit card, or send payment directly; and it will collect the required documentation, be it an invoice or receipt, and prompt for the required information.
These will connect with your bank. They will either send a check or electronic payment and manage tracking to ensure the checks get cashed. These solutions integrate with your books automatically, allowing you to pay bills and have them flow to your monthly reports.
Accounts payable suggested vendors
Ramp.com (our pick): Ramp handles credit card accounts payable and offers great rewards, and it has integrated bill pay and consolidated vendor management. Their consolidated platform allows for payments to vendors on credit cards and by check to be seen through a single pane of glass. Everything syncs well with Quickbooks and allows for granular control over spending.
Brex.com: Brex is a credit card company that has recently added AP abilities in the movement of the industry to consolidation of expense management and accounts payable into a single solution.
BILL: BILL is AP first but purchased Divvy (a Ramp competitor) and is integrating the solutions to effectively offer the same product as Ramp. The one benefit is BILL also handles accounts receivable- this might be useful if you need a more complex solution than Quickbooks, but not a point solution like Stripe.
QuickBooks: They offer an add-on for most needs here, including payroll and accounts payable, so it can satisfy some of the accounts payable needs but won’t do everything yet.
Expensify: If you’re using American Express cards, Expensify offers one-click receipt tracking and expense management that integrates with QuickBooks and Xero. It pulls all the categories from QB, allows you to sync directly with American Express and others, and can be mostly automated depending on your level of comfort with expense policy compliance. Expensify has also launched its own card.
Accounts receivable
Don't forget to get paid!
If your business deals in invoices, provides products or services to customers, and wants to invoice and get paid, you'll need to deal with accounts receivable.
What is accounts receivable?
Accounts receivable is the money your business is owed resulting from your company providing goods and/or services on credit.
BILL and QuickBooks handle this, allowing you to invoice and track payment receipts. Receiving money and the accounts receivable process tend to be domain-specific, with many different products covering various niches like subscriptions, e-commerce, and service-based businesses. You will want to ask around this area to find the best fit.
We do not have a “best pick” here because it depends greatly on your product and how you sell it—subscriptions, usage-based billing, fixed contracts, etc. Once you figure that out, you can find the best scalable solution to accounts receivable.
When to find a solution
It's easy to start with a manual invoicing solution until you hammer out a product and then choose the right accounts receivable tool.
If you offer a self-serve SaaS solution where people can enter a credit card or deal with recurring billing, you'll want to use a tool like Stripe Checkout, Zuora, or Recurly.
Accounts receivable suggested vendors
Stripe Checkout: Stripe Checkout is a drop-in payment flow designed to drive conversion. You can add it to your website and let customers pay you with a credit card.
BILL and QuickBooks also handle accounts receivable, so they’re great picks if you're already using them for accounts payable. These tools are simplified and can be used for billing fixed contracts but are not good solutions for things like subscriptions or self-service payments.
Subscription tools: Zuora, Recurly, and Lago are all solutions for managing your subscription-based business. Lago (a SignalFire portfolio company) offers metered and usage-based billing through a flexible, open-source platform designed for cloud and software vendors.
Everything accounted for
These tools and services make your accounting as turnkey as possible so you can focus elsewhere. As you scale, it’s important to re-evaluate your stack to see if you’ve grown out of simpler solutions as you hire whole teams to handle these functions.
You shouldn’t have to go through it alone. SignalFire’s back-office team—including our legal, finance, and operations departments—is available to help our portfolio companies pick the perfect tools for them, learn to leverage them efficiently, and get preferential pricing and support. It’s just one of the many value-adds—including help with recruiting, go-to-market, data science, PR, fundraising, and more—that our Beacon AI and in-house experts provide to ignite your growth.
*Portfolio company founders listed above have not received any compensation for this feedback and did not invest in a SignalFire fund. Please refer to our disclosures page for additional disclosures.
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