founders Archives - Altitude Accelerator

Bookkeeping: A Secret Weapon for Thriving Startups

altaccelerator — Mon, 19 Aug 2024 21:18:48 +0000

by Mehr Sokhanda

In the early stages of a company, founders typically focus on product development, achieving market fit, and scaling their business.These are important priorities, but there’s a critical aspect that’s frequently overlooked: bookkeeping. This function is typically overlooked; however, proper bookkeeping can be the difference between success and failure for a young company.

In a recent discussion on Tech Uncensored with Tanvi Gupta, senior manager within the assurance services team of MNP, we explored the critical aspects of bookkeeping for startups and small businesses. As Gupta puts it, “In the simplest words, bookkeeping is just a process of recording financial transactions, think about documenting the flow of money into or out of a business.” 

Despite this straightforward definition, Gupta emphasizes that bookkeeping plays an important maintaining the financial health of your business, ensuring compliance, and enabling informed decision-making. 

Why Bookkeeping Matters

Bookkeeping provides the foundation for financial management. As Gupta notes, “You need accurate bookkeeping so that you can keep track of your cash flow, manage your expenses, and plan for the future.” For founders, this means having a clear, real-time picture of their company’s financial health, which is essential for making informed decisions, securing investment, and ensuring long-term sustainability. Without solid bookkeeping practices, a startup risks flying blind, potentially leading to cash flow problems, missed opportunities, or even business failure.

For startups seeking investment, bookkeeping is especially key”Investors and stakeholders would require your financial information to assess the performance, sustainability, the durability of your startup.” In addition, she adds that all businesses must follow regulatory compliance. This is typically done through annual tax filing requirements through the Canada Revenue Agency. As well, as part of the business planning process, having a historical record of business transactions is useful for risk management.

Despite its importance, many startups overlook bookkeeping, especially in their early stages. The reasons are varied, from lack of knowledge to resource constraints. About 20% of businesses fail due to cash flow problems – issues that could often be avoided with proper bookkeeping practices.

Overcoming Bookkeeping Hurdles

While the perceived costs and complexities of bookkeeping can be daunting for startups, there are ways to overcome these challenges. Gupta highlights the benefits of automation tools, which can record transactions automatically, allowing founders to simply review them. She also suggests outsourcing as a practical solution for time-constrained startups. “Outsourcing allows experts to handle bookkeeping, freeing up time for founders to focus on other aspects of their business” Gupta explains. Additionally, she emphasizes the importance of investing in basic financial literacy and training to help founders better understand and manage their company’s bookkeeping needs. By leveraging these strategies, startups can streamline their financial management processes and concentrate on scaling their business.

Bookkeeping vs. Accounting: Understanding the Difference

Gupta acknowledges that bookkeeping and accounting, while closely related, are distinct fields as well.

She elaborates, “Bookkeeping, involves the transactional side—recording day-to-day financial data, like cash inflows and outflows. But accounting is taking a step further. Accounting is when you take all the data from the bookkeeping processes, and you start interpreting and analysing the data to provide insights and support decision making.” Essentially, bookkeeping is the first step, providing the raw data, while accounting classifies, summarizes, and reports it, which helps with tasks like cash flow management and financial forecasting.”

Understanding Cash vs. Accrual Basis

One of the initial steps in bookkeeping is deciding between the cash basis and accrual basis of accounting, which are two methods used to recognize financial transactions.

The cash basis, as Gupta explains, recognizes revenue and expenses only when cash is received or paid. It’s straightforward and often preferred by small businesses and sole proprietors due to its simplicity. For instance, utility bills are recorded as expenses when paid, not when the service is provided. On the other hand, accrual basis recognizes revenue when it is earned and expenses when they are incurred, regardless of cash transactions. “It’s more complex accounting. It requires adjustments for accruals deferrals. It results in a timing difference between recognition versus cash,” Gupta noted, adding that it aligns with Generally Accepted Accounting Principles (GAAP) and is often necessary for larger businesses.

However, Gupta emphasizes, “The CRA generally recommends the accrual basis for businesses, but small businesses below a certain annual gross revenue threshold may still use the cash basis for tax reporting, provided they follow specific rules…what you’re talking about has tax implications on when you recognize revenue. This distinction is important for tax implications, particularly in determining when revenue is recognized—whether in the year it’s invoiced or the year it’s collected.”

Importance of Accurate Classification

Accurate classification of financial transactions is essential for maintaining the integrity of your books. Gupta emphasized, “You don’t want your revenue being recognized as a liability. It’s essential that everything is tracked properly.” Using standardized categories helps ensure that similar transactions are consistently recorded, aiding in accurate financial reporting and analysis. Gupta explains, “A sale should always be recorded under a sales account, not as an expense or receivable. It’s important to use standardized categories and follow consistent accounting principles, whether you choose cash or accrual methods.”

Best Practices for Effective Bookkeeping

Gupta outlined several best practices for maintaining accurate and efficient bookkeeping that every founder should consider. Consistency is key; transactions should be recorded regularly, whether daily, weekly, or monthly, as waiting until the end of the year can lead to inaccuracies and missed details. She also emphasized the importance of using a double-entry system, where each transaction impacts at least two accounts to maintain balance—for instance, receiving cash from a customer should affect both the cash and sales accounts.

Additionally, thorough documentation is essential for easy audits and reconciliations. Gupta advises, “You could also consider digital filing now as most of the software available currently are cloud based. So, think about digital filing all your documents, all the relevant support, and ensure they are securely saved. And by doing some of these easy tasks that most tend to refrain from doing upfront, you can ensure that your financial data is as accurate as possible.”

Outsourcing Bookkeeping: A Cost-Benefit Analysis

For many startups, outsourcing bookkeeping can be a cost-effective solution with several key advantages. Gupta highlights, “It leads to reduced payroll. Rather than hiring a full-time employee or even part time employee to do the bookkeeping you can just outsource the job to specialized firms that handle bookkeeping more efficiently and at a lower cost. There’s an elimination of training and recruitment costs as once you hire the outsourcing firm, you don’t need to train them.”

She adds, “Also think about cost savings on software and technology. While smaller businesses might be able to keep track of transactions in Excel, growth often requires investing in software. By outsourcing bookkeeping, the firm handles the necessary tools and software, saving you from purchasing and maintaining a software license.” Gupta also emphasizes how outsourcing provides access to specialized expertise, which minimizes the risk of errors and compliance issues. 

Annual Filing Requirements

Finally, Gupta highlights essential annual filing requirements for businesses, stressing the importance of staying compliant with the CRA. Payroll remittances, including taxes deducted from employees’ pay checks, must be regularly submitted to the CRA. Additionally, businesses are required to file the Harmonized Sales Tax (HST) on a monthly or quarterly basis, depending on their sales volume.

Corporate taxes are another critical obligation, with the T2 corporate tax return due annually. “Most startups have a December 31st year-end, but other year-ends are possible depending on what period makes sense for you,” Gupta explained, noting the flexibility businesses have in choosing a fiscal year that aligns with their operations.

Effective bookkeeping is a fundamental pillar of startup success. “Think about it as a foundation, and then you build on the future predictions, assumptions in the modelling, so that you have better results for decision making,” states Gupta. By maintaining consistent and accurate bookkeeping practices, leveraging the right accounting methods, and considering the benefits of outsourcing, startups can better manage their cash flow, avoid costly errors, and position themselves for growth.

As Gupta highlighted, “Startups should prioritize their financial management from the outset. This will empower founders to focus on scaling their business with confidence, knowing that their financial foundation is solid.”

MNP is a valued partner of Altitude Accelerator. If you are interested in learning more about this topic or wish to find out more about MNP, please contact us at info@altitudeaccelerator.ca

We are accepting final applications for our Investor Readiness and our Market Readiness programs! Apply for our Investor Readiness program here and our Market Readiness program here.

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Altitude Accelerator and MNP Collaborate to Empower Founders

altaccelerator — Mon, 29 Apr 2024 21:03:22 +0000

Altitude Accelerator, a leading innovation hub, is excited to announce its strategic collaboration with MNP, one of Canada’s leading professional services firms. MNP is an entrepreneurial firm built for entrepreneurs providing personalized client-focused accounting, consulting, tax, and digital services. Together, we are committed to supporting companies as they scale and thrive.

Empowering Growth:

Startup Bootcamp: Altitude Accelerator’s Startup Bootcamp, with guidance from MNP, will provide startups with essential resources, mentorship, and workshops. Whether it’s refining business models or navigating regulatory landscapes, our experts will guide entrepreneurs toward success.

Office Hours: Entrepreneurs can tap into MNP’s seasoned professionals during regular office hours. Accounting, tax, and operational advice will be readily available to address specific challenges and drive informed decisions. Complete the office hours intake form here.

Our mission aligns perfectly with MNP’s commitment to empowering businesses. Together, we’ll drive success for scaling companies, ensuring they reach new heights.

About Altitude Accelerator:

Altitude Accelerator is dedicated to fostering innovation and supporting entrepreneurs.

Altitude Accelerator has provided business startup and growth services to tech companies in Brampton, Caledon and Mississauga that want to kick-start growth for their venture. Altitude Accelerator alumni companies have received over $575 Million in funding, generated $421 Million in revenue, and created over 2,000 jobs.

About MNP:

National in scope and local in focus, MNP is one of Canada’s leading professional services firms — proudly serving individuals, businesses, and organizations since 1958. Through the

development of strong relationships, we provide client-focused accounting, consulting, tax, and digital services. Our clients benefit from personalized strategies with a local perspective to fuel success wherever business takes them.

“Our collaboration with MNP exemplifies our dedication to innovation and community impact. We look forward to a dynamic future together.” – Pam Banks, Executive Director, Altitude Accelerator

For media inquiries, please contact:

Pam Banks, Executive Director: pam.banks@altitudeaccelerator.ca Phone: 905.320.5785

Learn more about Altitude Accelerator at www.altitudeaccelerator.com.

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Guiding Founders to Sustainable Growth: Expert Strategies with David Peterson

altaccelerator — Mon, 29 Apr 2024 20:42:59 +0000

by Mehr Sokhanda

In the dynamic world of business, growth-stage founders face a unique set of challenges and opportunities. Steering a startup toward sustainable growth requires more than just a great idea or initial capital; it demands a strategic approach to both leadership and financial management. At a recent episode of our podcast “Tech Uncensored,” we hosted David Peterson, aka The Optimization Coach, to discuss the crucial strategies that growth-stage founders must adopt to enhance their revenue quality and manage operational costs effectively.

Currently, Peterson guides growth-stage companies to double their revenue growth and reach their ambitious goals. With a rich background in technology and entrepreneurship, his approach not only makes companies attractive to investors, but also supports founders in creating sustainable, owner-operated businesses. He offers invaluable advice for founders looking to navigate the complexities of scaling their firms and achieve long-term success. Peter reflects,

“I have observed that as business owners start to build more profitable companies, their perspectives often shift. Initially, they may focus solely on money making but as their business begins to generate significant revenue, they start to consider bringing in investors or seeking further growth independently. So, as a founder, you never really stop with one great idea. There are always other ideas that just keep flowing and provide endless opportunities for expansion.”

The Project Approach: Mastering Time and Budget Management

Peterson’s philosophy that “everything is a project” is not just a statement about organization–it offers a strategic blueprint for founders looking to optimize their operations through disciplined project management. “I say everything is a project because that is the reality. There are two main things I look at when I say this: The first one being that there is a time bound activity for things to happen- they need to start and finish by a certain time- and the second that there is always a budget as costs are essential in dictating what you can build. We need this project approach because we need a plan. What do we need to know? What do we need to do to get to where we need to get to? What does it cost What is the real timeline for it? Would that work with all the other aspects happening within the business, such as all the other projects that have already been kicked in? Everything has a cost. Everything takes time.”

This meticulous planning and budget control creates a framework for accountability and progress measurement. By defining clear start and end dates for each project, founders can better manage resources, track advancements, and identify potential delays before they become critical issues.

The emphasis on budgeting reflects the pragmatic side of business management, where financial constraints help navigate the scope and scale of what can be achieved. Understanding and planning financial outlays in advance prevents cost overruns and ensures that projects deliver value within the company’s financial capacity. This focus on cost management is crucial for maintaining profitability and sustainability as the business scales.

Integrating these projects within the broader contexts of the company’s ongoing operations–like marketing initiatives or sales strategies- ensures that each project aligns with and supports overall business objectives. This holistic view promotes synergy across different functions of the growing firm.

Managing Pace

Moreover, founders often face the tensions between maintaining agility and the necessity for strategic foresight. Peterson emphasizes the need for this balance, noting the challenges of reactive decision-making without sufficient planning.

“If you are a founder just starting out and being nimble and, for example, are implementing a certain system in your firm, you could spend hours doing your research, setting it up, and putting it in. Then, as you start investing more of your time and focus on working with the system while your company grows, you may not realize what your company actually needs or what your five-year plan is. This might have been a quick fix initially but what happens if it has already been two years and you have outgrown the system? You must spend money to transition from one system to another, and suddenly you are solving problems that could have been avoided if you had taken a project approach to evaluate the entire situation in the first place.”

His insights highlight a common scenario where founders initially opt for quick solutions to meet immediate needs without considering long-term implications. This approach can lead to increased costs and operational disruptions as the business scales and requirements evolve. “You have to look at products, services, vendors, and potential partners that can support your growth. This is crucial because you want to grow into them rather than having them tap out or be outgrown, ultimately forcing you to shift. There is a cost to shift, right?”

Understanding Traction and Financial Planning in Startups

Peterson further focuses on the concept of traction, which refers to measuring speed of customer growth and its sustainability over time: “The traction and the pace of your growth will tell you how much of a growth you can sustain, especially if there is a prolonged period before you double your growth. Let us say you have one customer, and it takes you two months to get to the second customer; during this time there are costs to both support the customer and to just go on with business as usual. Those costs need to be factored in and that is why you must develop different strategies to interpret and handle the finances and understand how fast you really need to grow to make your business model successful.” Understanding these dynamics is important as founders must closely monitor their growth rates and associated costs to ensure their business model remains viable in the long-term.

Why do startups fail? Peterson remarks it is usually because they don’t have the necessary capital to get them to the other side, “…That is why sometimes if you have a project plan and go by it, you can understand if you have the finances to get you across. It is like saying ‘I want to drive from one end of the county to the other.’ You need to consider all the gas stations and if you have the money for gas at each, sometimes people have enough for the first tank and then they get stuck. So, you are missing opportunities because time is an opportunity.” He emphasizes that having a detailed project plan is vital as it helps founders anticipate their needs and plan, accordingly, ensuring they can maintain momentum and seize opportunities without premature stagnation. This foresight is essential for crossing the “bridge” from a new venture to an established business.

Transitioning into the CEO Mindset

Keeping these strategies in mind, it is also important to recognize that transitioning from a founder to a CEO requires a significant shift in mindset and responsibilities. “There is a transition that consists of letting go of the idea you had and letting the company run it, while you run the company with a CEO mindset,” Peterson articulates, emphasizing the pressure and the steep learning curve involved.

Most founders start with a passion project or a brilliant idea, but running a business encompasses much more. Peterson acknowledges how there are diverse aspects to manage, like marketing, sales, HR, and legal issues. Hence, he talks about how this shift demands that founders relinquish direct control over every detail and start thinking strategically about leading the organization toward sustained growth. It involves letting go of the initial personal attachment to the idea and embracing the broader responsibilities of guiding the company’s vision.

Dealing with Failure

Lastly, Peterson discusses the harsh reality of startup failures, emphasizing that many such failures occur because the financial runway was not adequately planned. Founders often face a critical juncture where they decide whether to continue pouring money into their venture or cut their losses. Peterson advises that getting timely advice and having contingency plans are vital to navigating these challenges. Founders should engage with advisors and coaches early on to avoid these obstacles as these relationships can provide the external perspective needed to evaluate the viability of continuing the business and exploring alternative strategies. He explains,

“Let us create a plan. Let us see what other opportunities are out there. Maybe some other types of investors are there or maybe repacking is the move. It could also be bringing it down slower to something that is more manageable and cost-effective in terms of what you can sustain or keep alive. Everybody’s journey is different.”

Peterson ends on an important question for all founders to consider: “Do you have a plan? And what does that plan look like? Is it written down because that is the first task, otherwise you are winging this with no way to measure your success, figure out when you need to pivot, or understand what you need to get back on track. So, it just comes down to this one question–do you have a plan?”

This is a integral piece of advice for any entrepreneur that stresses the importance of having a concrete, well-documented plan which would serve as the roadmap to guide firms through their growth phases.

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