Machine learning in accounting is changing how startups manage their finances. Learn how it could apply to your business.
January 8, 2021
A clear understanding of your startup’s finances is critical. For a new business, profit margins can be razor-thin and a small financial mistake can have an oversized impact on your bottom line. No matter how you handle your books, your finance solution must give you accurate results when you need them.
Startups working with a part-time bookkeeper, in-house accountant and/or external finance firm should feel confident that their books are being maintained properly and in a timely manner.
Unsure if your startup’s bookkeeper is a good fit? Read on for a few troubling signs that it may be time to find a new bookkeeping solution.
Accuracy is critical when it comes to bookkeeping, as accurate financial information is crucial to successfully running a business. A bad bookkeeper delivers sloppy work that requires frequent corrections; busy business owners don’t have time to pore over every financial line-item to ensure accuracy.
A good bookkeeper will double and triple-check the figures before releasing them, or proactively alert you of information required to keep your books up-to-date. If you are routinely flagging errors or requesting revisions to financial reports, it may be time to reevaluate your business accounting solution.
A big part of your bookkeepers job is to maintain your financial records in an organized system; this includes receipts, invoices, bank statements and payroll records. According to the IRS, this information should be stored for at least three years in the event your company is audited and you’re asked to substantiate details of your financial statements.
If your financial records are not maintained throughout the year, tax season will require more time and energy to gather and organize records after the fact, and your business may miss out on tax deductions and credits.
Ideally, your bookkeeper is attaching related financial documents to the entries within your accounting or bookkeeping software, ensuring you have digital copies of the documents and every transaction is accounted for.
When you ask a question or seek information, you should expect your bookkeeper to respond in a timely manner.
Slow response times may signify a lack of ability; e.g. your bookkeeper is unsure of how to complete the task and requires additional time to learn and complete it. Or perhaps they’ve overwhelmed, with too much work on their plate to deliver a timely response.
A slow response can also be a matter of personal style. The person may not be used to a position with high accountability, or they may have been a different style of communication with a previous employer.
Whatever the reason, responding slowly is a style you want to address before it becomes a habit. Clarifying your expectations upfront is a critical step in building a successful relationship with your bookkeeper.
Monthly bank reconciliations are crucial to identifying accounting or bank errors, preventing and detecting fraud, and ensuring your book balance and bank balance are accurate. It’s not abnormal to find discrepancies during this process; for example, you may discover a bounced check from a customer, bank fees which were not recorded in your bookkeeping software, or account fraud which must be investigated and disputed with your bank.
In the event of a financial audit, the auditor will review your company’s ending bank reconciliation as well. There is truly no downside to completing bank reconciliations and if your bookkeeper is not routinely completing this exercise, it’s probably time to find a new bookkeeping solution.
The end of month financial statements—income statement or profit and loss statement (P&L), balance sheet, and cash flow statement—help your team make decisions about the immediate future. These reports are also the key to keeping investors interested and involved, identifying cash flow problems, knowing your company’s bottom line, and much more.
When your bookkeeper is doing their job, they’re able to reconcile the information they’ve entered in your bookkeeping software throughout the month with your bank statements, and deliver your end of month reports in a timely manner. If your end of month financial reports are late, your bookkeeper should be able to give you a simple explanation. Consistent tardiness may point to a lack of ability or poor work ethic.
Your monthly financial statements must be properly organized and include relevant information in a clear format. These documents are standard tools for assessing your startups’ financial situation, and insightful reporting goes a long way. If your bookkeeper presents you with disorganized, unhelpful reports with critical details missing, they may not have the skills to handle your accounts as your business grows.
See also: How To Read a Profit & Loss Statement
Setting deadlines is a strategy used by business leaders to keep businesses flowing smoothly. In a startup, an employee or contractor who misses regular deadlines can throw off the whole system. If your accounts are not up-to-date, you may not know if you have the funds to, say, order new materials. This delay will then cause a slowdown in your production line. In this case, a bad bookkeeper can lead to late orders and unhappy clients.
Some people see asking questions as a weakness, they believe that it shows a lack of knowledge. However, your bookkeeper or finance team should ask clarifying questions so they can properly maintain your books and offer strategic financial advice.
These queries may be as simple as confirming receipt categorization for recent purchases, or as complex as reviewing your cap table to confirm accuracy of the equity section of your balance sheet. A bookkeeper may also ask practical questions that help you develop a sustainable financial plan.
If you’re not getting questions from your bookkeeper, especially during the ramp-up phase of working together, make sure they know how to best communicate with you to make sure you’re always on the same page.
A question about account reconciliation should not be met with a blank stare; a good bookkeeper should have a solid grasp of basic bookkeeping terminology and processes. When you first started your business, you may have tapped a friend who is good with numbers to handle your financial matters. In the early stages, everything may have flowed through a single checking account. However, with growth and investment, finances become more complicated and you need a bookkeeping solution someone that can handle bookkeeping practices beyond the basics.
You should be able to assess your accounting system or bookkeeping software (e.g. Quickbooks, Xero) at any time. When your bookkeeper restricts access to financial information, it can point to a lack of ability or more troubling issues. If the bookkeeper cannot keep up with the workload, they might cover it up by being secretive about the company’s books. The larger concern is that something improper is happening. In any case, make sure you have direct access and admin controls of your company’s bookkeeping and accounting software and documents.
To adhere to common financial compliance protocol your team develops workflows, or a way of managing business finances that is efficient and accountable. However, your workflows will only succeed if everyone participates, and your bookkeeper is a key component of the success of workflows and audit trails. Your bookkeeper should enforce or adhere to workflows on behalf of your business to help set you up for long-term success.
Sometimes, a bookkeeper has to address mistakes from a vendor, employee or even a business leader. And sometimes they too will make mistakes. They are human, after all. Taking accountability and proper action in response to mistakes made is a crucial attribute of a competent bookkeeper. If your bookkeeper or accountant is quick to pass blame or make excuses for mistakes, they may not be the best fit for your business which requires its financial support to be dependable and trustworthy.
We created Zeni to streamline all bookkeeping, accounting and finance-related tasks startup founders have to consider into a single solution. Zeni is a full-service finance firm that combines the benefits of AI and finance experts to deliver automated bookkeeping, accounting expertise, and a dashboard that gives you up-to-date finance reporting at your fingertips.
Zeni provides you with timely, accurate financial information about your business so you can avoid common startup pitfalls. Designed especially for startups and small businesses, Zeni offers: