Launching a startup requires a lot of attention to detail. Whether you’re trying to align your offerings with the market, working to keep your team happy, or trying to keep investors pleased with your progress, there’s always more to do.
Because there’s always so much at hand, some founders turn to automated bookkeeping software to keep their financial statements straight. While they offer a lot of convenience, they also come with some downsides that can create new issues when it’s time to report.
Should you use automated bookkeeping software to get started? Depending on where you are in your growth, the answer could easily be a yes or no. Before setting up a digital accountant to keep your finances in line, it’s important to understand all the pros and cons: it’s your business after all.
Pro: Convenience & Accuracy
Perhaps the best argument for opting for automation in general is the convenience. Instead of holding regular meetings with senior leadership and accountants, all your financial information is available by logging into a dashboard.
Because automated bookkeeping software platforms update multiple times per day, they also provide an accurate look into your finances on demand. Many software platforms allow you to link your bank accounts and credit cards, taking stock of your income and spending as it happens. This insight allows you to make quick decisions about your spending and prepare for future demands. While many accounting platforms offer this functionality, they all have varying degrees of effectiveness at correctly identifying and filing expenses.
Con: Maintenance & Degree of Difficulty
Although there is quite a lot automated bookkeeping software can cover, it also comes with a sharp learning curve. If you don’t already have an understanding of how best to manage corporate finances, or aren’t familiar with the software, keeping up with your books could still take a lot of time. Your time (and your team’s time) is finite, so taking time to learn new programs can cut into your productivity and therefore your profitability.
Maintenance is also an issue that business leaders will need to consider. Although transactions are automatically pulled into the platform, they can often be miscategorized and entered without notes or receipts. You also may not know what the right questions to ask are, or how best to reconcile expenses, which can make automated software a hindrance more than a help. To maintain compliance, all of that will have to be entered and corrected at some point — whether through your current staff, or by another staff member dedicated to financing.
Pro: On-Demand Data
Understanding your profit and loss (P&L for short) is critical to managing any business. If you don’t understand when and how you are generating cash, and how it’s being spent, you can’t make critical decisions focused on growth and scaling.
One of the advantages of using an automated bookkeeper is managing your P&L statement through analytics. Since the back-end work of categorizing expenses and reconciling cash is done behind the scenes, you can typically get a view into your company’s financial position on demand. By sending everything through one platform – accounts receivable, income, spending, and payroll – you can clearly understand your biggest expense categories and cash flow throughout your business. This actionable information can help you make budget decisions ranging from office space and hardware to hiring and staffing demands.
Con: Lack of Service & Support
Automated bookkeeping has obvious benefits when it comes to convenience and efficiency, but it can’t ever truly replace the expertise and knowledge of a dedicated human.
Just as most individuals use a free or inexpensive service like TurboTax at first, as you become wealthier having a dedicated accountant or tax professional for personal filings can make a big difference. Similarly, businesses can get by doing their own bookkeeping initially, but as things get more complicated and the sums of money being dealt with grow larger, you’re going to want an advisor with experience.
As the complexity of your finances grow and you add departments, figure out your cost of goods sold finally, hire that first remote employee, and more, it’s not uncommon to find automated bookkeeping software simply doesn’t have the features you need to effectively manage your business. Those who want the additional features, oversight, and accuracy may be able to add them to the current software package — but in most cases that extra degree of human touch can’t be replicated today that you would get from a CPA or finance professional.
And what if those features don’t work the way they are supposed to? What if the team needs additional support on a Friday afternoon? In many cases, automated bookkeeping software platforms don’t offer experts on demand, or a U.S. based call center for help. These outsourced support teams can’t answer complex accounting and tax questions about your software, or provide escalated technical support to help you dissect your cash flow projections. When immediate assistance is required, which becomes more common as you grow, it may not necessarily be found through an automated bookkeeping platform. Plus, humans who work in the startup industry capture so much more information than a financial system and can clue you in on trends, insights, and other information that isn’t available with simply bookkeeping.
Is Automated Bookkeeping Right for my Startup?
There is no unilateral answer for who would benefit most and least from an automated software platform, though as you scale having that human element is going to become more and more important. The financial needs of each startup is complex and unique, meaning there are no one-size-fits-all automated bookkeeping solutions that come out of the box ready to go for your company.
Smaller startups with fewer P&L and balance sheet issues, who are not focused on explosive growth, may do well with an automated bookkeeper. These platforms are often focused on smaller enterprises that are focused on methodical growth over a longer period of time. But if your business is attracting investors and considering expansion through venture capital, it is much more beneficial to have a focused team of human bookkeepers and accountants managing your finances.
No matter your size and growth plans, your business does best when trusting finance, tax and accounting to the experts. airCFO specializes in helping startup businesses maximize their resources and plan ahead. Contact us today to learn how we can help your company chart a course for your future.