Arleen Thomas yesterday posted “CPAs: The Startup Community Needs You” on the AICPA Insights blog. The post discusses the value a CPA can bring to startup companies. To illustrate her point, Ms. Thomas points to the accounting troubles encountered by Groupon when it tried to file for its IPO, noting that it wasn’t until recently that Groupon finally added accounting and finance expertise to the audit committee of its board of directors. If accounting issues could escape unnoticed at Groupon with, presumably, significant financial expertise both inside the company and among its advisors, as well as some corporate heavy-hitters on its board, then how much more at risk is the start-up or early-stage company that has NO accounting or finance resources whatsoever?
A start-up’s financial information – both historical and projected – is, by default, viewed with skepticism by the venture capitalists or angel investors that are being asked to fund the start-up. Having a CPA firm involved is invaluable in countering this perception and establishing credibility. This does not mean that the historical or prospective financial statements have to be audited, or even reviewed; it is a significant advantage just having a CPA firm involved in preparing the information and providing financial decision support to management. It also makes a good impression on potential lenders and investors to see that the start-up’s founders and management team have surrounded themselves with solid advisors, including accounting and financial professionals. A CPA firm with a financial management outsourcing practice – bringing CFO-type operational and transactional skills – is of even more value to a start-up than traditional CPA firms that are entirely audit and tax focused.
Ms. Thomas writes:
“Andrew Mason, CEO of Groupon, could have saved a lot of time and money though if he brought a CPA into his circle of advisers a lot earlier. The truth is that startups are focused on developing and launching their service or product, and rightly so. It’s not until someone, whether an investor or bank or stock exchange, requires a CPA to be involved that most startups pay attention to their financials. But that doesn’t have to be the case.”
I couldn’t agree more! Many startups fail to see the value of accounting and finance, and resist putting scarce resources toward the necessary expertise. Like going to a doctor only when sick, they wait until the pain of NOT having solid financial statements or projections becomes unbearable, typically due to some external impetus. By then, it may be too late to take advantage of an opportunity to raise capital, or to avoid a liquidity crisis. The ultimate cost – not only in real dollars to fix the accounting problems, but also in lost opportunities and lost credibility – is likely to be far greater than the earlier savings on accounting and financial expertise.
Virtual Lucidity 