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.

About teknowledgies

Teknowledgies, LLC, is a Silicon Valley-based consulting service. It was founded by Kim Lain and Tom Doherty who, collectively have over four decades of experience and expertise to offer. Our goal is to provide exceptional business consulting services to companies of all types and sizes.
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