12 Common Bookkeeping Mistakes Made By Startup Founders

12 Common Bookkeeping Mistakes Made By Startup Founders

One of the other big mistakes we see founders make who are doing their own bookkeeping is they procrastinate, and that's totally natural. I procrastinate on some of my bookkeeping internally at Kruze in some of my checks. We do that, everyone does it. Everyone gets busy, but, this can be really hurtful to you because it's sometimes, you really need to produce reports for your board or your VC investors. And because you've been procrastinating, you actually can't do it in a timely manner. And that's, that creates two problems. A), you usually rush, you distract yourself, and you probably do it incorrectly. And 2), when investors ask for your information like that. You're kinda on the clock, especially prospective investors who may be investing in the company. Like, they wanna see how organized you are. You're actually signaling to the market, how organized, how professional you are, and that can actually really impact your valuation. So, just make sure you're not procrastinating. Make sure you're doing it, you know, on a monthly basis.

The other aspect of this if you're not doing it, is it's really hard to get good estimates or good visibility on your burn rate and expenses. A lot of the founders who I know who do it themselves, they kind of, they'll do it every three months, or every four months, something like that. And they actually, in those three or four months segments, they will have hired a bunch of people and their burn rate will have gone way up, but they, because they didn't, they're doing their own bookkeeping, and didn't do it in a timely manner, they actually didn't know that. And they didn't know that their runway was, their cash runway was shrinking. And, that can be a really negative surprise.

And there's a couple problems with that. First of all, cash basis is just booking things when the cash comes in or cash goes out and that can lead to super bumpy financials, which makes it hard to actually see what you're doing on a monthly basis. There's a reason why GAAP requires accrual-based for expenses and for revenue, for that matter. You need to recognize that revenue, and recognize the expenses in the time period where they were incurred. And so if you're just doing on a cash basis, you know, you may procrastinate on paying your bills for a couple months, and then all of a sudden you pay a bunch of bills and your burn rate goes way up in the third month. And again, that's gonna shorten your time horizon on your burn rate, but also it's gonna look weird to investors and they're not gonna, it's gonna be hard to get a good read on your company. So please use accrual, I know it's a lot more work, but it's the right way to do things, and it'll make it a lot easier for you to get the diagnostics on the business.

Couple of other things that I see quite a bit, paying contractors multiple times for the same invoices. It's a generalization, but contractors a lot of times can be disorganized in their own billing. Meaning they bill you multiple times for the same amount of work, or you pay them and they're not very good at their own accounting, and so they think they didn't get paid, and so they bug you, and to get them out of your hair, you pay them again. This is one of those things where having a second set of eyes, an accounting firm, can be really helpful, and save you a lot of money. Like you don't wanna double pay them.

Another big one. And this kinda goes for using a bad accounting firm too, is we, it's very often we see people who are not invoicing at all, not invoicing on time, and / or not collecting on their invoices. This is a big problem if you're doing it yourself, 'cause invoicing, and collections are kinda a pain in the rear, and no one likes to do it. And so sometimes you procrastinate on this, or you just invoice incorrectly, or you invoice two, three months too late. And actually it can kinda make your customers a little bit mad, you know, like they wanna be invoiced on time, know exactly what's going on, 'cause it throws off their burn rates, if they're not getting invoiced on time.

And then, the big kahuna is, we see this with a lot of people coming over from not great accounting firms either, you just forget to collect on a $20,000 invoice, or a $100,000 invoice. And I know you're probably sitting there watching this video thinking like, "How could you ever forget that?" We see it all the time. Or we see the invoice that was in draft form that was never sent and never collected. This, these are things that we see people do on accident, and it's all because they're a little bit overwhelmed in doing their own books.