Lessons From A Failed Founder #3: Don’t Cheap Out On The Paperwork
I made the mistake of half-assing our administrative chores, and it nearly killed the startup. Here’s how I turned things around.
Bookkeepers, accountants, controllers and CFO’s of this world — you’ll forgive me when I say that for the rest of us mere mortals, there’s nothing more boring and draining than sitting down for even 15 minutes to “go over the numbers” with you. I thought you would simply take care of this, working quietly in the background.
Such was my arrogance just a few years ago, when I didn’t appreciate the importance of maintaining a clean administration. Why, we are founders. We have more important, sexier things to do! Once again, I was wrong. So stupidly wrong. It wasn’t until our first audit that it dawned on me the ship could go down real soon.
Our bookkeeper cleaned up a backlog of at least ten months of downright neglect.
Luckily, the ship stayed on course and our little startup passed the audit with flying colours. I had nothing to do with that, save for the foresight to hire an excellent bookkeeper just two months before we were treated to the surprise audit. In record-time, our freelance accountant cleaned up a backlog of 10 months of downright neglect.
Here’s what our administration, if you could even call it that, looked like: We had a couple of envelopes stacked with random bills and invoices. Then there was the well-intended folder meant to rank all our expenses by month. And we had this huge pile of paper on my co-founder’s desk made up of contracts and letters of intent.
Before we turned things around, we were losing money left and right. We missed payment deadlines, we forgot about important letters of intent and every week there was another surprise invoice that ruined both our revenue model and our moral. It wasn’t until we were slapped with a huge fine that I decided to get serious about our paperwork.
We pledged to clean house so that we could focus on our startup’s strategy and execution.
First things first: My co-founders and I agreed I’d be the one responsible for our administration. This included bookkeeping, legal documents, correspondence, and all contracts with third parties, employees, freelancers and service providers. With one person now responsible, we pledged to clean house so that we could focus on strategy and execution.
What happened after that was nothing short of amazing. It felt like our shabby startup got a second chance to prove its worth. A second chance, a fresh start. We got serious about recordkeeping, made a point of archiving every piece of paper digitally and we opted for a simple system that allowed us to search for and in PDFs.
That said, here’s how I would do it the next time:
- Leave the bookkeeping to a pro from day one
It doesn’t have to be someone in-house. There are plenty of companies that will happily turn your shoebox of bills and documents into a neat, monthly digital archive compliant with local financial and legal regulations. - Don’t underestimate your legal obligations as a founder
There are many parties that expect you to maintain a clean back-office. Not a week goes by where someone needs a financial statement from you. It is your legal duty to ensure proper recordkeeping. - Be prepared for audits, and due diligence checks
The very last thing you want as a founder is to be taken by surprise when someone demands a report. Aside from legal obligations, you also want to come across as a cool-headed pro who knows what (s)he’s doing! - Sit down once a week to go through all the bills
Whoever takes care of your administration should be considered your best friend, so take time out for that special friend to review all the bills. This provides you with a weekly status report on your startup’s financial health. - Discuss the financial status quo on a weekly basis
Start with mentioning the current balance, followed by the expected inflow within the next 7 days. Meet once a month for a bigger picture overview tied in with the monthly review of your mission.
Whoever takes care of your administration should be considered your best friend.
Update 11 May 2019
I’d like to paraphrase a quote here from Kenneth, COO for multiple startups:
“It’s crazy that founders don’t spend more attention ensuring their books are well kept and organised, as all the data should be actively used as a tool to support management’s decision-making!”
One last bit of advice: Depending on the country your startup is located in, you should go paperless right away. While some jurisdictions demand you still archive all of your paperwork in physical folders, having everything scanned in indexable PDFs will speed up your daily operations. As with 99% of all the work we do, it boils down to discipline. An, on that note:
Your administration reflects the overall health of your startup!
Lessons From A Failed Founder is a series of blog posts by a thirty-something entrepreneur who made all the mistakes in the big startup playbook, and then some. My posts are no pearls of wisdom: Consider them the cautionary tales of a young founder who wants you to avoid making the same mistakes.
Feel free to reach out to me at failedfounder{AT}gmail.com
