Entrepreneurs must make many, many decisions when starting a growth company, and decisions on what accounting or other support systems should be adopted are rarely top of mind. Yet it may be fair to say that no seed-stage company necessarily has failed as the result of selecting the wrong accounting system.
When it comes to deciding on such support systems, nonetheless, a bad selection certainly can cause a start-up to waste valuable time and resources. Every entrepreneur needs to give careful thought to the kinds of backend business functions their business will need to support. Some of those backend functions include:
- Accounting, including accounts receivable and payable
- Customer relationship management
- Document management
- Stock transactions and ledger
- Option plan management
- Non-disclosure and confidentiality document management
- Contract and agreement management
- Financial reporting and retention requirements
- Human resources management
When a company is still in its start-up and early stages, several of these functions can be easily managed. Many entrepreneurs start out by buying a copy of Intuit’s QuickBooks to carry out many of the operations and then manage the other functions by keeping documents neatly organized in a file cabinet. Again, this can work well while a company is in its startup phase. Once a business begins to grow, however, failure to put adequate systems in place can cause problems and cost the company dearly.
Asking the Right Questions Is Key
When the entrepreneur is ready to develop backend business functions, particularly those that involve utilizing technology, several key questions should be considered:
- Is the company in a highly specialized vertical, where dealing with suppliers and customers demands certain protocols and formats? For example, certain manufacturers will only take orders (or give significant discounts) via a specific protocol. If that is the case, then purchasing a specialized system is a really good idea. In many cases, these systems can be built on top of basic systems like QuickBooks or Peachtree.
- Is the company going to do business with the U.S. Government? If so, the project reporting and accounting requirements will be rigorous. An experienced program manager and a good software package can ensure the organization can adhere to the reporting and accounting demands that working for government entities can entail.
- Is there a software package that many similar companies use? If so, is there an advantage to using that package as well? Several highly specialized software packages have been developed for specific vertical industries, including medical, dental, office supplies, and furniture sales. These packages are often great all-in-one solutions for many businesses.
Considering Every Function
As the entrepreneur considers what is needed to support their business, it is important that they keep in mind that not all backend business functions need to be supported in-house. In many cases, backend functions such as HR and payroll can be outsourced efficiently, and there are excellent companies specializing in these areas.
First-time entrepreneurs will often not pay sufficient attention to payroll and HR operations, yet most states have rigorous rules about such functions. Many states have HR regulations that kick in when a company employs a certain number of workers. For reasons like these, every entrepreneur should obtain legal counsel on these matters and prepare for them by implementing adequate processes and procedures.
Additionally, while document management is often the last thing on an entrepreneur’s mind. If ignored, it can become a costly error. For instance, when a start-up raises financing from either angel investors or venture capitalists, certain things need to be in place. Many are obvious—others may not be. They include:
- A stock ledger. An accurate record of every share of stock issued, who owns the stock, and the certificate numbers will need to be tracked.
- Confidentiality and patent assignment agreements for each employee, signed at the time of hire, need to be kept organized and accessible.
- Option grants, with grant date and price, for each issued option, need to be documented.
- Signed NDAs with all parties to whom you have disclosed confidential information need to be put in place within an organized system.
- Signed final agreements and contracts need to be filed and kept within easy reach.
Basically, the entrepreneur will need a complete record of everything that binds the company. Documents like these can be critical for many reasons. For instance, if such documents are not in place, they can delay the closing of financing, and in the worse cases, can result in excessive legal fees while proper documents are tracked down.
No Need to Go It Alone
Thinking about the backend functions needed to support a start-up business can be daunting, but an entrepreneur does not need to go it alone. Hiring an office manager and/or administrative assistant who has handled similar processes in the past can be helpful in ensuring the business runs efficiently. Such assistants can coordinate many of these operations, including getting the accounting functions up and running, making sure payroll is handled correctly, and keeping track of all of the documents and journals. Make no mistake: these key staff should be treated well.
In summary, setting up back office operations is certainly not the most sexy thing an entrepreneur does when starting a company. It is a task, all told, that needs a high degree of care and consideration.
© 2006 Dan Rosen. All rights reserved.
Dan Rosen CEO and President Dan Rosen and Associates