Launching a startup can really sound like an exciting adventure. A brilliant idea, a talented team, and the wish to make the list of unicorns by disrupting the market.
In reality, a startup is so much more than a great idea turned into reality. The sad reality is that 2 out of 10 startups fail after a year. There’re lots of reasons for this failure rate and one of them is financial problems.
About 77% of new businesses survive their first year. Some blame competition, the wrong niche, marketing problems and many more. But according to research by CBINSIGHTS, a staggering 38% of failed startups say that the main reason is some problems with cash flow. This makes financial management of startups a point to focus on. And the best way to address financial issues is to implement a reliable accounting solution.
In this article we’re going to explore the specific needs of startups and the best accounting software choices that can help avoid financial downturns.
Contents:
1. How is a startup business different from a small business?
2. Specific needs and challenges of startups
3. How to choose accounting software for startups
4. Best startup accounting software 2024
Key takeaways:
- Financial troubles can be one of the biggest hurdles on the way to success for startups, which means that financial management should be the top priority from the very onset.
- The most common financial challenges for startups – fundraising, due diligence and cash flow problems, can be addressed with the help of a good accounting software.
- When choosing the best accounting software consider your startup budget, and features the accounting software provides, like security, integration options, scalability and the learning curve it requires.
How is a startup business different from a small business?
While a startup is a company in its first stages of operations often characterized by innovative approaches, a small business is typically defined by the number of employees (up to 1,500) and its annual revenues (up to $40 million). A small business is often characterized by:
- Smaller teams of employees;
- Smaller markets they cover;
- Lower levels of revenue and profitability.
A startup, unlike a small business, has the following set of typical features:
- Innovation;
- Rapid growth;
- Limited resources.
The most important and vulnerable period for any startup is its first two years when a startup aims to disrupt an existing market by a new product or service, and focuses on scaling quickly to reach a large audience.
Based on that, a carefully chosen accounting software solution teamed up with the right specialist is the best solution for startup financial problems . And to be able to choose the right accounting solution we need to define the specific features, needs and challenges startup may face.
Specific needs and challenges of startups
- Fundraising. Securing enough capital to develop the product, hiring talent, and marketing their business is one of the most significant needs and challenges of every startup. Using own funds, loans, angel investors, or venture capitalists are some of the most typical funding options for startups. And nothing attracts investors better than the strong financial health of a startup.
- Due diligence. Due diligence is a part of fundraising. When seeking for investment or entering into partnerships, a startup conducts due diligence to demonstrate its financial state, allowing its investors to assess the risks and potentials. Due diligence helps startups identify their weak points and address them as soon as possible.
- Cash flow problems. Financial instability is a common threat in the early stages of any business. Startups might struggle to generate enough revenue to cover their expenses. Managing cash flow effectively is essential to avoid running out of funds before achieving profitability.
- Product-market fit and competition problems. Developing a product or service that customers truly want and are willing to pay for can be a challenge. Creating something totally new and unique doesn’t yet guarantee that it becomes popular. We have to take into consideration that it’s hard to find some untapped market today and many startups risk being outcompeted by the established players.
- Building a customer base. One of the biggest problems for any startup can be attracting and retaining customers. Reaching the target audience and generating enough sales to sustain the business can be difficult with limited resources startups have.
- Team сhallenges. It can be really challenging for early-stage startups to build and maintain a strong team, managing its dynamics, and preventing burnout.
These are just some of the common needs and problems faced by startups in the first two years. Success during this vital period often indicates the ability to adapt and overcome challenges. The first 3 problems mentioned relate to the financial side and can be addressed with the help of the right accounting software that we are going to focus on next.
How to choose accounting software for startups
As it was mentioned before, experiencing financial troubles is one of the biggest startup killers. It’s also a fact that many business owners are trying to manage accounting and finance themselves. It might be money saving in some cases, but the question here is more about choosing the most effective way of handling the accounting of a startup in the long run. What’s the most effective way? Implementing accounting software seems to be the obvious answer. But with the wide range of accounting solution options choosing the best for your startup can really seem overwhelming at first. Let’s see how our guide breaks it down for you.
When choosing an accounting software for your business, there are several important steps to follow:
Step 1: Consider your budget
As startups are almost always on a tight budget, it does make sense to consider freemium options against paid options. As many accounting software options offer freemium plans with limited features, you should evaluate your business needs and weigh the benefits of a paid plan with more functionality against a free plan with limited features.
Step 2: Look into features
At first you want to focus on the range of essential features provided. Focus on such things as invoicing, expense tracking, bill pay, and reporting, which are crucial for managing your cash flow. Also, mobile access gives a major advantage for easy online accounting.
Then you might want to consider startup-specific features such as project management tools for tracking project expenses, inventory management if you sell products. And if your startup operates in a specialized industry, consider software with features tailored to your specific needs. If you are a SaaS startup, you surely need a revenue recognition feature, recurring subscription billing and real-time dashboards with the key metrics like CAC, CLV, MRR.
Step 3: Check for integrations
Choose software that integrates seamlessly with the other business tools and systems you use or are planning to use (CRM, payment gateways, credit cards, payroll, banks). The value of a good accounting solution is defined by the range of integrations it provides.
Step 4: Think big or scalability
Even though you’re still at the startup stage, choose the software solution that can grow with your business, and startups can grow exponentially. Focus on the options with flexible pricing tiers that adapt to your increasing number of users or transactions.
Step 5: Consider security and customer support
Since keeping your financial data is a top priority, ensure the software offers robust security features like data encryption and user access controls. And it’s hard to overestimate the importance of good customer service.
Step 6: Think about a learning curve
Choose software with a user-friendly interface and intuitive features that will minimize the learning curve for you and your team.
These are some steps to consider while choosing your accounting solution. Now, let’s look at some popular choices for accounting solutions for startups.
Best startup accounting software 2024
Our choice of best accounting solutions for startups is based on the features that they provide and their user reviews on G2, the world’s largest tech marketplace.
So, here’s our top 5:
- Synder – 4.7/5
- FreshBooks – 4.5/5
- ZohoBooks – 4.5/5
- Xero – 4.3/5
- QuickBooks Online – 4.0/5
Let’s look at each of them closer.
Synder
Synder is an accounting tool that was specifically designed for online and SaaS businesses. Synder has more than 30 integrations with other accounting solutions, marketplaces, and payment platforms. Let’s look at how Synder can help a startup.
Strong points
- Accounting integration functions
If your startup works with QuickBooks Online, QuickBooks Desktop, Xero, Sage Intacct as your accounting software and you have transactions on various marketplaces and payment platforms, Synder Sync is the tool that is able to organize and sync all of these transactions in your accounting platform, making reconciliation effortless. Synder is able to organize all transactions in a detailed way making your P&L statement and Balance Sheet perfect, which is exactly what investors and stakeholders need.
- Revenue recognition
One more significant feature Synder provides its clients with is Synder RevRec or GAAP compliant automated revenue recognition, which is particularly important for SaaS startups. This feature allows you to automate revenue recognition for Stripe subscriptions and handle subscription changes, refunds, custom billing and so much more with ease. Synder RevRec gives you complete support for IFRS 15 and ASC 606, recognition of discounts, multicurrency support, granular view of subscriptions and accurate reports, and the ability to process invoices with extended payment terms.
- Flexible data synchronization
Synder offers two different kinds of data sync. The Per Transaction mode allows you to get detailed data for each transaction in your accounting platform, while the Summary Sync mode is focused on posting daily transaction summaries for each connected platform, which is more effective for startups with a great number of transactions.
- Due diligence assistance
If your startup is getting ready for an audit, looking for fundraising opportunities or considering mergers and acquisitions, then due diligence is the inseparable part of the process. Synder can effectively simplify due diligence by ensuring the accuracy of your financial records through flawless integration of all payment platforms, sales channels and accounting solutions.
Stand-out features
Synder is proud of its great sync customization options which allow you to sync with the details your startup requires. It allows you to get customized reports that you can tune to your startup needs.
On top of that Synder has an amazing support team ready to help 24/7 and a wide variety of integrations and partnerships that are invaluable for online and SaaS startups. The commitment to the company’s motto, ‘Machine accuracy. Human approach.’, is reflected in hundreds of reviews not only on G2, but across multiple review platforms and marketplaces.
Pricing
Synder’s price range is $61-$275 paid monthly with a 15-day free trial with no credit card requirements. The free trial includes all the features and full support so that you could test the software. What’s more, you can sync and reconcile the last month of online sales and see how Synder works for you.
Synder is a great option for ecommerce and SaaS startups, so if you’re excited to know more, you can register for a Weekly Public Demo.
FreshBooks
FreshBooks is a Canada-based company that started as an invoicing software and grew into a small business accounting solution.
Strong points
- Customer support
FreshBooks is known for its super fast customer service provided by phone calls and emails. Service representatives are committed to giving you the best consultation and you can also make use of a great knowledge resource.
- Invoice management
FreshBooks is noted for its outstanding invoicing capabilities. There’s no surprise here as invoicing was the start of FressBooks. Invoices are highly customizable with the option of adding a logo and personalized message, and creating recurring invoices in the preferred currency.
- Financial reporting
FreshBooks provides a good financial reporting feature including income statement, balance sheet, general ledgers, income/loss by month/customer and others.
Stand-out features
Apart from great customer support and strong invoicing features, FreshBooks has project accounting tools and a mobile app that allow you to do almost all the functions of its desktop version.
Pricing
FreshBooks’ price range is $17-$55 with 30 days of free trial for some plans.
FreshBooks is a great solution for startups that need strong invoicing, project accounting tools and a powerful mobile app.
Zoho Books
Zoho Books is the product of an Indian multinational tech company and it’s really popular in Asia, especially in India.
Strong points
- Project accounting
Zoho Books has a strong project management tool helping its clients to add inventory, labor, sales taxes and other items using its Project module. Zoho Books allows you to manage multiple projects, adding tasks, assigning users to complete them, generate project centric reports and set budgets for the projects.
- Invoicing
Zoho Books’ invoicing feature allows you to create and customize professional invoices. You can generate invoices in multiple languages and choose the appropriate currency as well as set up recurring invoices and reminders to track your receivables.
- Mobile app
With the mobile app by Zoho Books you can receive payments, send invoices, categorize expenses, and much more as it has all the essential features your startup might need on the go.
Stand-out features
Zoho Books has really good inventory tracking features, making it possible to adjust the cost and quantity of inventory, sort items based on vendor, stock keeping unit and item details, and track COGS.
Pricing
Zoho Books is available at $0-$240 per month.
Zoho Books is a good option for startups looking for a strong mobile app and those on a tight budget as it has a free option for one user and one accountant.
Xero
Being a New-Zealand-based tech company, Xero can be a great alternative to QuickBooks. The software is popular mostly in Australia, New-Zealand, Asia, and the UK for its flexibility, good APIs and comparably low cost.
Strong points
- Fixed asset manager
Xero’s dedicated fixed asset manager page allows you to keep track of your fixed assets and work with your accountant to manage them, keeping your books up to date. You can manage depreciation and disposals as well as run reports to show fixed assets and their value.
- Financial reporting
Xero has a strong reporting feature able to generate basic financial statements and specialized reports lacking unbilled time and income/loss by customer reports.
- Project accounting
Project accounting is the feature that many startups need and Xero is particularly proud of. It offers a number of features like project estimate assignment and inventory recording for projects. With Xero you can monitor profit margins and get ready with the quotes using location-based tracking for example.
Stand-out features
Aside from fixed asset manager and project accounting features, Xero has a great purchase order (PO) system that can track unpaid bills, record e-payments, and much more. Xero is also known for a reliable inventory management system that can add inventory to invoices and track COGS.
Pricing
Xero’s price range is $15-$78 with 30 days of free trial.
All in all, Xero is a great accounting software for a startup looking for project accounting, fixed asset tracking and inventory features.
QuickBooks Online
QBO is a well-established player in the accounting industry and a very popular accounting solution for startups in the US for a number of reasons.
Strong points
- Scalability with automation
QBO is able to tackle the rapid growth of startups by automating a significant amount of data entry using many APIs and bank feeds, providing efficient bank reconciliation.
- Standard and easy to manage
QuickBooks Online is an industry standard accounting system that most accountants, CPAs, and bookkeepers are familiar with. That means that any professional can pick up where the previous one left with ease as there’s no need for training and switching. This consistency saves your time and helps you quickly understand your financial data.
- Clear upgrade path to enterprise systems
It integrates well with many enterprise resource planning systems, which are designed to handle the financial data demands of larger businesses. This means you can seamlessly transition your financial data to an ERP system when the time comes, without having to re-enter everything from scratch.
Stand-out features
QBO is known for its strong inventory management features, a great mobile app, invoice customization, and assisted bookkeeping feature – QuickBooks Live.
Pricing
Monthly pricing ranges from $30 to $200 with a period of free trial for 30 days or a 50% discount for 3 months (without a free trial).
QBO is a great fit for startups looking for assisted bookkeeping, strong invoicing and inventory tracking features as well as ecommerce companies due to its great number of ecommerce integrations.
| ACCOUNTING SOFTWARE | STRONG POINTS | STAND-OUT FEATURES | PRICING PER MONTH |
Synder | Accounting integration functions Revenue recognition Flexible data synchronization Due diligence assistance | Sync customization Amazing support team Wide variety of integrations | $61-$275 |
FreshBooks | Customer support Invoice management Financial reporting | Project accounting tools Mobile app | $17-$55 |
Zoho Books | Project accounting Invoicing Mobile app | Good inventory tracking features | $0-$240 |
Xero | Fixed asset manager Financial reporting Project accounting | Great purchase order system Reliable inventory management system | $15-$78 |
QuickBooks Online | Scalability with automation Standard and easy to manage Clear upgrade path to enterprise systems | Strong inventory management features Great mobile app Invoice customization Assisted bookkeeping feature | $30-$200 |
Bottom line
There are many accounting tools to help your startup grow and scale. Choosing the best one requires considering your business needs, specific demands of the industry you work in and your budget and matching it to the features and functions the best accounting tools provide. Thinking about security, the number of integrations, the possibility to scale, learning curve and the support you can get from your accounting solution can save you lots of time and nerves in the future.
