Scaling to $1 Billion – Backoffice Basics

Hero or Xero? The Right Accounting System for Your Startup

You’ve just gotten a chunk of Series A money. And you’ve gotta make it last. But you need equipment, a bigger office space, more employees, sales revenue, and most importantly, a way to track of it all. So what do you do? You get an accounting system.

An accounting system provides awesome benefits. Here are two of many: the first is less clutter so you’re more organized as the figuring is done electronically; the second is an at-a-glance dashboard to reveal how your business is doing at a moment’s notice.

Okay so, which accounting system do I buy? There are so many out there!

This article outlines the basics of start-up accounting and then compares three popular accounting software systems, QuickBooks Desktop, QuickBooks Online, and Xero, to see how they stack up for your business.

A key first thing is to know which system your accountant is using. More than likely, it’s QuickBooks. QuickBooks is by far the most popular choice for small businesses. However, ask your accountant what they recommend.

Other considerations, from must-haves to nice-to-have features, must also be taken into account. Below is a brief, albeit not all-inclusive, list to get you started:

MUST-HAVES

Accounts payable, accounts receivable, and a general ledger

Invoicing

Income and expense tracking

Financial report generation

Client and vendor management

NICE-TO-HAVES

Automated functions like billing, recurring payments, and past-due notifications

Quote and Estimate Creation – premade and customizable templates to create quotes and estimates for clients, and with an option to automatically convert them into invoices

Tax Preparation – features such as automatic tax calculations, multiple tax rates and tax reporting, and the ability to instantly email all necessary data and files to accountants

Also, multiuser access and payroll processing are nice to have.

 

So What Do We Recommend?

Here’s a quick comparison of three popular systems to help pick the one that works for you.

QuickBooks Desktop

• Pros – Best for small- to medium-sized companies with limited complexity and few remote users. Excellent features. Has optional payroll and inventory modules. Allows direct deposit to employees and vendors. Most small business accountants use QuickBooks.
• Cons – More expensive initially; requires a perpetual license for all users plus the server.

 

QuickBooks Online

• Pros – great for small businesses with many remote users. Low monthly subscription price is good for cash-conscious startups.
• Cons – Limited functionality compared to QB Desktop. Not great at inventory.

 

Xero

• Pros – good for small companies with remote access. Best pricing for 10+ users (monthly subscription). Better for bookkeepers versus accountants.
• Cons – Inability to perform some basic accountant functions such as posting journal entries to cash, creating quotes and support is limited to email with long response times. Not as widely used by accountants.

 

The bottom line is assessing what is best for your company can be challenging because each company has a unique set of requirements.

The best first step is to ask an expert, Teknowledgies, LLC, to assess your specific accounting needs and recommend the system that will work best for you.

Start-ups need to get their accounting system set-up early on to increase their chances of scaling to a billion dollars in the most efficient manner possible.

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DRAFT 1  4/11/16, 8 AM

 

Scaling to $1 Billion – A Back-office Look at How to Grow Your Startup – by Kimberly Lain

Article 1 – April, 2016

 

Hero or Xero?  The Right Accounting System for Your Startup

(Optional Intro) It’s midnight. Do you know where your money is?

(Optional Intro) All startups – profitable or not – need accounting systems. You must know where your money is going. (And if you don’t your investors sure as heck do!)

(Optional intro) You’ve just gotten a big chunk of series X money. And you’ve gotta make it last. But you need equipment, a bigger office space, more employees, sales revenues, and most importantly, a way to keep track of it all. So what do you do?

As an entrepreneur, you need to know what to look for in an accounting system. We’ll give you some basics and them compare three popular accounting software systems and see how they stack up for your business.

Here are some must-haves and nice-to-haves:

Must haves:

• Basic Accounting Functions – like invoicing, income and expense tracking, financial report generation, and client and vendor management.
• All-in-one solution – it should have A/P, A/R, and a general ledger, at a minimum, but must be able to have add-ons such as payroll as you grow.
• Automated functions like automatic billing, recurring payments, and past-due notifications.
• Quote and Estimate Creation – premade and customizable templates to create quotes and estimates for clients, and with an option to automatically convert them into invoices.
• Tax Preparation – Features such as automatic tax calculations, multiple tax rates and tax reporting, and the ability to instantly email all necessary data and files to accountants.
• Multiuser Access – Must allow access to multiple and remote users (e.g., you, your employees, and your accountant)
• Payroll Processing – Must allow time sheet data entry, pay calculation, taxes, paycheck printing

 

Nice to haves:

• Less clutter. You don’t need to keep piles of paperwork everywhere – especially if you or your accountant keep all your documents electronically. Which you should…
• At-a-glance dashboards provide a snapshot of how the business is doing in a given moment in time.
• Third-party integration. Integrating and automatically inputting real-time data from apps such as POS systems, inventory, e-commerce, ERP, credit card processing, CRM and third-party apps.
• Complex functions – Handles business functions such as inventory, subsidiaries, and foreign entities
• Vacation Accrual – automatically calculates employees vacation time off and time left

 

So What Do I Recommend?

Here’s a quick comparison of the market leaders to help pick the one that works for you.

QuickBooks Desktop:

• Pros – Best for small- to medium-sized companies with limited complexity and few remote users. Excellent features. Has optional payroll and inventory modules. Allows direct deposit to employees and vendors. Most small business accountants use QuickBooks.
• Cons – More expensive initially; requires a perpetual license for all users plus the server.

 

QuickBooks Online:

• Pros – great for small businesses with many remote users. Low monthly subscription price is good for cash-conscious startups.
• Cons – Limited functionality compared to QB Desktop. Not great at inventory.

 

Xero:

• Pros – good for small companies with remote access. Best pricing for 10+ users (monthly subscription). Better for bookkeepers vs. accountants.
• Cons – Inability to perform some basic accountant functions (such as posting journal entries to cash, creating quotes), support is limited to email with long response times. Not as widely used by accountants.

 

Bottom Line: Assessing what is best for your company can be challenging because each company has a unique set of requirements. The best course of action is to ask an expert, like us, to do a professional assessment of your specific needs and then recommend the accounting system that will work best for you.

 

About Kim

Market leaders in high-tech, biotech, manufacturing, and many other industries turn to Kim Lain and Teknowledgies, LLC, for accounting, finance, and back-office systems advice and solutions. Over the past seven years, Kim has helped over a dozen startups collectively grow to an aggregate value of over $10 billion. Could your startup be next?

Contact Kim at klain@teknowledgies.com for more information.

Cool Stuff! Listen While You Work!

Science proves it – whistling while you work does help!  http://www.dailymail.co.uk/sciencetech/article-1313993/The-Dwarfs-right-Whistling-work-makes-job-better.html

If the Seven Dwarfs had had today’s music technology, they probably would’ve been jammin’ to Nirvana while they worked. And who knows how their lives would’ve turned out differently.  I mean, would Grumpy really be grumpy if he could listen to the Red Hot Chili Peppers from a credit card-sized player and high definition headphones while he labored all day in the diamond mine? Maybe Bashful would’ve gotten the courage to ask Snow White out for beers after work?

Fortunately for you, there’s some very cool technology to help you get through your workday – even if you aren’t hauling out wheelbarrows full of precious gemstones while still living with your six roommates. This technology includes digital to audio converters (DACs), high definition music sources, and some amazing headphones, all of which will turn your tinny-sounding iPhone into a mind-blasting, sensory-overloading rock concert (or a live George Winston piano recital, whatever you like J

Thanks to cool technology you can literally revolutionize the quality of the music that comes out of your laptop – in spite of the auditory travesty called digital media compression!

DACs

The single-best thing that you can do to improve the sound of your digital music is to add a digital to analog converter (or DAC) to your PC .  You will notice a massive improvement in sound quality. The reason? Your laptop’s DAC is CRAP.  Yes, even Macbooks and iPads.  A simple plug and play USB-based DAC will seriously upgrade the sound quality. IMHO, a basic DAC equals ten times better quality.

A Few Good DACs

There are quite a few DACs available today, and they range in price from around $100 to $20,000. Yes, you can get a McIntosh (not Macintosh – Apple doesn’t care about sound quality) DAC for $20K. I’ve never heard one, but I am going to assume that the ROI is infinitesimally small…

Here are a few DACs that I’ve found interesting. A good place to buy them is crutchfield.com – they have a ton of them. Here are a few, all of which I’ve owned and can personally vouch for:

• nuForce uDAC2 – $120
• AudioEngine D1 – $170
• Cambridge Audio DACMagic Plus – $600

By the way, most DACs have built-n headphone amplifiers, so you can really blow your mind. Which is nice.

Headphones

Like a three legged stool, each of the Listen While You Work components is very important, and headphones are no exception. Choosing the right type of headphones depends on your work environment or, in other words, how badly you want to piss off your neighbors or how much do you want to spend. In either case, the choices are almost limitless.

Let’s look at the types of headphones for your work environment:

–          Open air – usually more comfortable than their counterparts, open air headphones are usually not quite as accurate, nor as loud, as closed air phones. A side-effect is that your co-workers will be able to hear your music as you increase the volume.

–          Closed ear – these typically go over the ear and seal out the outside world – including pesky co-workers – and allow you to listen to your tunes at the best possible volume levels, ie, full blast, without disturbing those pesky co-workers. This design usually means, dollar for dollar, a more accurate sound quality, but to me it has the downside of being a bit less comfortable, especially for extended listening periods.

–          Canalphones – Canalphones?? Seriously?

–          Wireless headphones – Just say no.

–          Noise cancelling – Just say no. (Plus you want to hear the jet engines anyway – to make sure the damn plane is still flying!)

My recommendations:

–          Grado – nice, warm sound. Open ear so you’re going to piss off the cube mates.

• Minimum Model – SR225 (~$200) or above

–          B&W – great home speakers and very nice headphones. Very accurate.                On ear and closed back.

• Minimum Model – P3 – (~200) or P5s (very nice = ~$300)

–          Sennheiser – excellent sound but the around-the-ear design can become fatiguing

• Minimum Model – HD 380 Pro – (~$200)

Disclaimer – This blog assumes that the reader has a modicum of audio technology intelligence; for example, they would never consider buying headphones created by a rapper, even if that rapper claims to be a “doctor.”

Music Sources

A key to good music quality is a good source. While we all love the convenience of digital music, most of the choices are not great

And digital music does not offer many quality source choices.

–        iTunes – the base system offers very poor resolution; creating an AAC (advanced audio coding), provides a minimally better sound quality, but creates a much larger file

–        HDTracks – one of the highest quality sources available, but the selection is nowhere near as large as iTunes

–        Pandora – a free streaming “radio” station that can be taught to play songs that you like; a higher quality stream can be purchased for about $30 a year.

–        MOG and Spotify – two subscription music services – see how they compare – http://www.gadgetreview.com/2012/06/mog-vs-spotfiy.html

A Couple More Cool DACs

The DACs below are *tiny* — no bigger than a USB thumb drive. But you pay dearly for the cool factor.

–        http://www.meridian-audio.com/en/collections/products/explorer-1000/4/specification/  -$300

–        http://www.audioquest.com/usb_digital_analog_converter/dragonfly-dac  – $250

A review: http://www.head-fi.org/t/617241/audioquest-dragonfly-review-affordable-outstanding-tiny-dac-amp

My advice – go for the nuForce at half the price. Try it out, then move up to others. Like I like to say, “$120? I’ve spent more than that on lunch!”

The Ultimate Digital Audio Machine: The McIntosh Aire. If you’ve ever been lucky enough to own McIntosh stuff you know that it exudes a “warm” sound quality that’s like no other. Well, here’s a way to own a McIntosh in a relatively affordable manner. The McIntosh Aire. At $3500 it’s not cheap, but you will definitely have the badass DAC of your office.  Check it out: http://www.mcintoshlabs.com/us/Products/pages/ProductDetails.aspx?CatId=lifestyle&ProductId=McAire (Download this cool app to make your iTunes have the McIntosh meters look – https://itunes.apple.com/us/app/mcintosh-ap1-audio-player/id411263894?mt=8

 

MYaaS Is Now Online

I know we’ve talked about Software as a Service (SaaS), Backup as a Service (BaaS), and Disaster Recovery as a Service (DRaaS).  Now enters Management Yield as a Service (MYaaS) as part of a new product offering.   Here’s a quick memo that I’ve just sent out to my employees on the subject.

Management Yield as a Service

This memo announces the development of a new software system known as “Management Yield as a Service” or “MYaaS.”  Next Monday there will be a meeting in which I will demonstrate MYaaS to everyone.  We will hold repeat demonstrations throughout the month so that all employees will have an opportunity to get a good look at MYaaS.

Networking aspects have not been addressed yet.  Only one person at a time can use MYaaS.  This restriction will be removed after MYaaS expands.

Fortunately some employees have begun using the program already. This morning I walked into a subordinate’s office and was not surprised to find that he had his nose buried in MYaaS.  It is understandable that some of the less technical people may be somewhat afraid of MYaaS.  Last week my admin assistant said to me, “I’m a little nervous, I have never entered anything into MYaaS before.”   I helped her with the mechanics the first time and afterwards she admitted that it was relatively painless process.  She was so excited she was even ready to kiss MYaaS and her screen right on the spot.

Concerns have been expressed about a virus that was found in MYaaS upon initial installation, but this virus has been addressed and eliminated.  However, in the future, virus protection will be required prior to entering MYaaS.

This database will encompass all information associated with the business. As you begin using the program, feel free to put anything you want in MYaaS.  As MYaaS grows larger, we envision a time when it will be commonplace for a supervisor to hand work to an employee and say, “Here, stick this in MYaaS.”

It will be a great day when we need data quickly and our employees can respond, “Here it is, I just pulled it out of MYaaS.”

And…that is your smile for the day!

Bet a Beer – and Maybe Your Career – on HyEx

I just read yet another so-called white paper touting the advantages of an OpEx-centric approach to datacenter services.  The message is that you have to be an idiot if you actually buy IT infrastructure rather than rent it.  It further stated that you can save loads of money and have fewer headaches with an OpEx expense versus a CapEx investment.

Is OpEx really better?  The answer… it depends.

If your company is small, growing, and wants to maximize cash flow, then OpEx is your likely answer.  In this specific case, it will be more advantageous to lease, e.g., lease an email server from GoDaddy.com rather than buy a Proliant server with MS Exchange and manage it day-to-day.

If your company’s exit strategy is ultimately to be purchased, OpEx again is your likely answer.  Your company doesn’t want to saddle its books and salability with expensive, obsolete-the-second-you-bought-it hardware.

So when is a CapEx investment strategy the best way to go?  Honestly, most of the time. If your firm is an established, profitable entity and you’re on a Built to Last[i] (vs. built to flip) trajectory, you should be CapEx-focused.  Purchasing a piece of capital equipment outright is usually better if 1) you keep it and use it over a several year period and/or 2) you qualify for a one-time capital full-depreciation of a capital asset (as described in Section 179 of the IRS tax code).

How about a real life comparison—leasing a car vs. buying a car.  If like me, you like to buy cool cars and then drive them into the ground, you would write a check, i.e., CapEx, for the car, depreciate it, and write off the operating expenses (gas, repairs, etc.).  If you are like my better half, you would lease, i.e., OpEx, a more modest car and write off the lease payments and mileage expenses. In the end, our strategies work best for each of us.

Is there a better alternative out there?  HyEx is a term I have coined for using a combination of CapEx and OpEx.  I strongly suggest that most companies which invest in IT infrastructure seriously consider using a combination of CapEx investment and OpEx expense or…HyEx.

Here is an example.  If your company is a mid-sized to large-sized company and your data centers run out of capacity during peak transaction periods at month-end or end-of-year, you may want to lease extra capacity to allow for “bursting” during those times.  (Rumor has it that Cisco’s Intelligent Automation for Cloud will one day let set up a menu-driven burst-over process with public cloud providers such as Amazon (EC2), Rackspace, Savvis, and others, based on price, response time, or other required value.  To me, that is the epitome of a hybrid cloud.

So there you have it.  The next time someone tells you that their product is better because it eliminates the evil CapEx cost, ask that person to do a TCO including tax advantages, the time value of money and other factors.  Then just for fun, bet him or her a beer you can prove them wrong – you will win every time with HyEx in your back pocket.

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 [i] Jim Collins wrote an excellent book that highlighted the values of companies that were built for the long-term, companies like HP, Disney, and Marriott. More information can be found at this site: http://www.jimcollins.com/article_topics/articles/building-companies.html

What We Do

Teknowledgies, LLC, provides consulting services in two basic areas: accounting/finance and sales/marketing.

Accounting/Finance

Teknowledgies offers accounting and finance consulting including financial analysis, budgeting, forecasting, costing, risk management, financial system integration, metrics/scorecard development, and policy/procedure implementation.

In addition we can develop and exercise complex monetization models to drive sales, including strategic and tactical plans supported by business/financial analysis. We will create ROI models utilizing multiple revenue streams and go-to-market strategies to support product and service launch decisions and long-term results.

Product Marketing/Management

A key component of any successful company is its product management process. We have decades of experience, education, expertise, and ultimately success is launching and maintain products. We get it. We can help you understand product lifecycle management, including the latest advances such as agile product management, and help you create and manage products that are not only market leaders, but also extremely profitable.

Product marketing is another key expertise for Teknowledgies. We understand all aspects of how to get customers to find, learn about, and ultimately buy your product. This includes PR, print ads, web advertising, SEO/SEM, blogs, Twitter, newsletters, white papers, sales training and incentivizing, and much, much more.

Tom Doherty is the lead consultant on all product management, product marketing, and business development projects.