The Startup Journey: How Should You Handle the Accounting?

Have you ever found yourself late at night working on something that makes you think to yourself, “Why am I doing this?” I know I have! Ask any entrepreneur or startup founder what their most valuable resource is, and nine times out of ten you will get the same answer - “time”. Properly recording your new business’ transactions, reconciling accounts, and preparing financial reports can be a time-consuming and daunting task for nearly anyone. So what is the best way to handle these things? Should you do it yourself? Should you hire someone full-time? Part-time? Or should you outsource accounting and other back-office operations? Each approach has its benefits and drawbacks, and the right choice depends on your specific needs, resources, and long-term goals.

The DIY Approach

Doing the accounting yourself, especially in the early stages of your business, can many times be the most cost-effective approach. There are many free resources available to help guide you in properly recording and reconciling transactions.

Benefits

The largest benefit of the DIY method is saving money, especially when cash flows are in a difficult spot. In addition, nobody knows your business like you do, so managing your own records can provide you the deepest insight into the success of your business; you inherently know the most valuable metrics to track. This means you are in complete control to make strategy adjustments on-the-fly while staying hands-on with all aspects of your business.

Drawbacks

Managing your businesses’ accounting can be incredibly time-consuming. In addition to properly classifying and recording transactions and reconciling bank accounts, you are also responsible for learning how to do those things in the first place. With this limited expertise, you may find yourself struggling to manage complex accounting situations that require expert knowledge. As your business continues to grow, the risk of errors becomes greater, and these errors in accounting can lead to bigger problems in compliance with bank covenants and tax regulations.

Hiring an In-House Accountant

Hiring an accountant may be a good compromise between doing it yourself versus fully outsourcing accounting. This option would typically be considered once operations are large enough to warrant constant financial oversight of your business.

Benefits

Similar to the DIY method, an in-house accountant will have a deep understanding of the business, leading to proactive changes in financial strategies. In addition, as an employee, you will have constant and real-time communication with the accountant. This can be especially valuable in fast-paced startup environments where quick financial insights are needed. Having an employee maintain direct oversight of the financial operations can also lead to better and faster decision-making opportunities in your business.

Drawbacks

Hiring an employee to oversee the accounting operations is generally going to be the most expensive option. This can often be a deal-breaker for startups, especially during the early stages with limited cash flows. In addition, managing an in-house accountant will require significant time and effort, from recruitment and onboarding to mentoring and supervising. In-house accountants may also have more limited expertise in complex accounting issues, as they may not have the specialized knowledge needed for more difficult accounting principles.

Outsourcing the Accounting

Outsourcing the financial operations of your business may open doors to more opportunities. Not only will you be able to focus on growing your business, you will also have a “fresh set of eyes” on the operations, leading to new ideas or changes in strategy.

Benefits

During the early and middle stages of starting your business, you generally do not need around-the-clock management of your finances. By outsourcing the accounting, you can save money compared to hiring an in-house accountant, as the time commitment is significantly less. The time saved in managing the accounting yourself or overseeing an employee can allow you to focus on your core business activities and ensure continued growth. In addition, outsourcing can provide you a direct line to experts in your field that can handle the complex accounting issues as your business grows.

Drawbacks

Outsourcing your accounting may make you feel like you have less control over your financial operations, with communication and response times being somewhat slower as compared to a dedicated employee or doing it yourself. Outsourced accountants also cannot know your business and your goals like you do, leading to potential misalignment in advice or goal-setting. You should also be prudent in selecting providers who will keep your data secure, as sharing your financial information will inevitably lead to security concerns.

Which is the Right Option?

There is no one-size-fits-all “right” option. (But you already knew that, didn’t you?)

How you choose to handle your accounting operations will depend on your level of expertise, available resources, and long-term goals. In general, we typically see businesses start with the DIY approach in the very early stages, transitioning to outsourcing the accounting functions as soon as viable. Once operations have grown significantly enough to where constant financial oversight is needed, we see businesses move some or all of those functions in-house, while the outsourced provider continues to provide financial insights and strategic advice.

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