3 min read

How Interim Accounting can save your startup

Founders know it is crucial for a startup to cover all the core skills within the team. The numbers guy stands for one of the most important skills: Accounting should be state of the art and accessible at all times for the company’s own management, as well as for investors. Unfortunately in reality, the accountant’s position is often underrated.

How to avoid the one most common mistake startups make with accounting?

Startups in the first few years often have only one person responsible for accounting, which is fine as at that point money is usually a very limited resource. That said, if this specialist drops out, for example because he/she wants to pursue a career opportunity somewhere else, the consequences for the startup often prove to be more severe than its leaders think. Usually, it takes a few months until the company finds out the hard way that a vacant accounting department is something that has to be taken seriously. Without good accounting, the basis for decision-making declines and problems pile up. Having reached that point, the companies are desperately looking for an emergency solution.

“The best solution is often an interim accountant, a service many startup leaders don’t know exists”, says Magnus Bilke, CEO of DONE!Financials.

The accounting expert Magnus Bilke, who has more than ten years of experience with accounting for startups and ten years in tax offices, gives an explanation on how to successfully bridge a transition phase as long as the accountant’s position is vacant.

How long does it take to find a good accountant?

Good accountants are hard to find. Especially those who fit in in an agile and fast-paced start-up environment. If the person who was in charge of the company’s numbers leaves, the position is often difficult to hire for. At the moment, the market is empty.

“In Berlin, it takes an average of nine months to fill an accountant position,” says Magnus Bilke. In many other startup hotspots, things don’t look any better. In such a situation, the management team tries to somehow muddle through. A talent for improvisation is a great quality for founders, but it doesn’t get you very far in accounting.

Can you manage without an accountant?

If the accounting department is not permanently kept up to date, deficiencies pile up until nothing works anymore. Eventually, the whole accounting system collapses. As a consequence, the management is no longer in control of up-to-date business figures and the financial KPIs. This can have a disastrous effect because they are the basis for the decision- making processes in the company, warns the expert from Done!Financials. “Especially for startups preparing for the next financing round, this situation can become critical. Who would invest in a company that doesn’t know its own numbers?”

What is an Accounting Bible?

Even if a new accountant has been hired after a few months, most of the financial know-how is already lost. It takes a long time to build it up again. Costly and inefficient processes are to be expected. That problem can be avoided if precautions are taken in good time: Startups that are growing rapidly and do not yet have established processes should keep an “accounting bible”. This is a kind of accounting handbook in which all the company’s specifics are documented and ensures continuity even if the one responsible accountant leaves the company.

Who documents the accounting?

In theory, an accounting bible is a fine thing, but let’s be honest here: Does anyone in your company keep the minutes all the time? Almost no one does. Startups often have a single accountant or a small team with no particular motivation to take notes on how they work because there are always so many other things to do. Furthermore, due to the constant changes that are natural to the vibrant startup scene, the documentation has to be adjusted frequently. Experience proves it’s an enormous task which is most of the time neglected.

How do we close the gap quickly?

If it is not possible to hire a new accountant instantly, it is possible to buy in the necessary expertise. The most natural go-to would be to ask the company’s tax consultant. Unfortunately, most tax consultants don’t have the capacity. Especially when it comes to a somewhat larger startup, where 10,000 transactions per month or more quickly add up. This cannot be done on the side and usually tax consultants are already tight on staff and resources. The situation is aggravated by the fact that most of the time an external tax consultant will only be interested in the job if he can provide long-term support for the client. In contrast, most startups are right if they only want to outsource accounting temporarily and keep the important know-how in house. An alternative is an interim accountant, who from the beginning on is seen as a temporary solution. He or she can fill all levels of competence, from the vacation replacement of a bookkeeper to CFO.

What does the interim accountant do?

Ideally, the interim accountant comes in before the responsible employee leaves. This ensures a proper handover and saves the precious know-how for the company. The interim manager can thus take into account the specifics of the company. However, his or her experience out of prior missions allows him or her to bring in an external view on the company’s accounting systems and find potential improvements. As soon as a new employee is found, he or she is trained by the interim accountant. In this way, a smooth transition is ensured.

“Interim accounting comes at a price. That said, muddling through for months without accounting is eventually way more expensive”, says Done!Financials CEO Magnus Bilke.