In an earlier post, I suggested that there are 2 kinds of people in business, those who have the money and those who need the money. I stand by this oversimplification. To it, let me add another one about accounting people vs. finance people.
As someone who became a CFO having never been either, this took me some time to figure out.
Accounting is about portraying the past as accurately as possible. Debits and credits. Extreme attention to detail. Process. Tying out pennies. Having the equity roll work exactly a certain way. On average, this attracts a certain personality type: precise, introverted and someone who operates well at ground level. This kind of person is absolutely essential and vital to have in any business and especially one that is growing quickly. They provide the data for the early warning systems. They strive to eliminate ambiguity.
Where I’ve had to adapt is in describing how the output should look and what it all means. I can look at a balance sheet and quickly tell if something doesn’t make sense. Deep in the weeds accountants, even really good ones, most often cannot. Frequently this has frustrated me; when I get a statement that can’t possibly reflect reality, it makes me doubt the accounting that was behind it.
Although sometimes this is right, I’ve had to unlearn this reflex. That’s because this is finance. Finance is about making sense of the results, communicating them, and trying to predict the future. It’s about a lot more than that but this is it at its heart.
Finance people, of which I am one, often lack the patience for accounting. It’s a little more right brain than left. Yes, you need the skills to build a pivot table or a model. First though, you need to know what you are looking for. Ambiguity is your friend. This is the part that CFOs are good at, or should be. That mindset is very different than being particularly OCD about the accounting for stock-based comp.
Over time I have learned to appreciate both and tried to adapt in particular to working with skilled accountants. I respect what they do, and know that I couldn’t do it. I hope that they can appreciate what I do as well.
Recently I’ve had to get particularly pedantic with a couple of my clients about language. Specifically, how they talk about certain metrics in the business.
A common one things that young companies conflate are bookings and revenue. It’s not just an accounting nuance that they aren’t always the same thing. It’s an important business problem to be solved. My client that sells fashion online? The credit card swipe is nice, but until we ship, it’s not revenue. It’s actually a debt: we owe someone a hat. In the SaaS world this debt is called deferred revenue and it sits on the balance sheet for a long time.
Another is on the opposite side: cancellations and churn. Or for my co-working client, cancellations and move outs. If someone cancels on November 10th, their move out is December 31st. Without getting into which one is more important to track, they are different and tell you different things about the business.
These distinctions matter a lot when you’re looking at unit economics (more on this topic later). Put simply – per widget that I sell, how am I doing? A widget can be a hat, or a square foot, or for a staffing company, an hour. My new client services cars in mobile trailers. Our unit is the trailer (like a store). It makes sense to know how each trailer is doing. But I could argue, and might continue to, that once the trailer exists, it’s the appointments that matter. Optimizing those is the whole ball game.
My point is that this stuff actually matters. Once you choose a unit, it becomes the root word, so to speak, in the language that your team and your investors are speaking.
Because I work in build stage companies, and often early ones at that, the general ledger (G/L) system I encounter the most is Quickbooks Online. Often one of the first questions I get is whether we need to make a change to a more robust system. Always my answer is no.
My philosophy on this is that until a company is much bigger, having an accounting system that knows all isn’t worth the workflow change, the financial investment, and the upfront systems hassle. Quickbooks Online (QBO) is fine. It’s not great — but it’s fine. It does the basics and has the benefit of having tens of thousands of qualified people who know how to use it.
What I would rather do is invest in smart systems around it that do their functions well, and integrate with it. This can be A/P (bill.com), ERP-lite (Fishbowl), payroll systems (any of them), expense management (Expensify), cap table management (eShares, Carta), sales tax (Avalara), and on and on.
If a build-stage company is going to invest in systems, it probably should be in optimizing Salesforce. Or if it’s an e-commerce company, better to get your Shopify instance really singing. Building a sole source of truth about all things customer is way more important than implementing an expensive G/L system.
I’m a believer in keeping the G/L’s functions limited. I use it for management and Board reporting and as a transaction repository. That’s it. For anything else, there is a better system out there and most are not expensive either.
I’ve seen $50M software businesses backed by some of the most sophisticated venture investors in the world run their businesses and do their reporting based on QBO. If they can do it, I figure I can too.