For early-stage founders, watching every dollar is crucial. But there’s a difference between smart frugality and cutting corners – and underinvesting in accounting and finance systems can create crises that emerge when firms can least afford it.
The Expensive Truth About Cutting Corners
Imagine the scenario: a founder concentrates on sales, growth, and fundraising, but accounting and finance systems are treated as low priority. Sales are booming, growth is exponential, and investors are eager to participate in fundraising.
But treating accounting and finance as a low priority means the books are a mess, and a critical audit is due in 30 days. Taking corrective action is an all-hands-on-deck crisis, impacting every aspect of operations – at precisely the moment when focus should be on growth and fundraising.
What does that initial corner cutting cost? Time, as emergency cleanup demands intensive focus. Money, as rapid corrective measures often far exceed initial investment. And investor confidence, non-quantifiable perhaps but appearing sloppy can easily sour that enthusiasm.
This is not a hypothetical – we see it often. By cutting corners or even attempting to handle accounting themselves, founders can convince themselves that proper accounting and finance investment can wait until later. The problem is that “later” arrives fast, and cleanup costs can be substantial.
Systems Strategy: What to Invest In (and When)
Avoiding this scenario means taking accounting and finance setup as seriously as sales and growth. Unfortunately, there’s no universal, one-size-fits-all answer to what good systems look like. But taking a methodical approach to investing in accounting and finance from the beginning always pays dividends.
All founders should invest time in due diligence when selecting accounting and finance systems and software: talk to multiple vendors, ask hard questions, and ensure any system can scale with you for at least 2-3 years.
Here’s what we consider the priority hierarchy:
- Keep proper documentation on everything. Nothing will come back to bite you harder than inaccurate record keeping and data collection. Investing in accounting systems is non-negotiable. Even if you’re a CPA, do not try to DIY your own financials. Proper setup won’t cost much initially and it’s worth every penny.
- Capitalization table management software is a high priority. Investing in a reliable source of truth for ownership avoids expensive legal challenges down the road – nobody (except perhaps lawyers) benefits from being forced to reconstruct ownership decisions taken months ago.
- Accounts payable / receivable software is less urgent initially – less urgent provided founders maintain disciplined record-keeping.
Taking a methodical approach – with a healthy dose of skepticism regarding claims made by accounting software vendors – will help build accounting and finance systems that will last through growth and avoid crisis cleanup.
Even after taking time to install reliable accounting and finance systems right from the start, growth companies can still quickly outgrow them. So it’s also important to recognize the warning signs that you’ve outgrown your setup. Pre-emergency indicators include too many people involved in single functions, excessive cross-team conversations, manual processes hitting limits, and transaction volume exceeding system capacity.
Building Right – Right From the Start
We’ve seen these crisis scenarios played out. Seeking professional guidance based on hundreds of founder experiences provides critical perspective on where you are today and where you need to be a year from now.
The choice isn’t between spending money on financial infrastructure or conserving resources for product development. It’s between proactive investment in proper systems and expensive reactive cleanup when poor foundations collapse.
The difference between confident scaling and crisis management often comes down to decisions made in the earliest stages. Startups that thrive aren’t those who delayed this investment – they’re the ones who get it right from the start.
