Josh LanceJosh Lance
Should Your Investors Control Your Accounting Process?

Should Your Investors Control Your Accounting Process?

When you are running a startup, you are managing many different processes.  Typically, you are in charge of sales, product or service development, accounting & financial management, human resources, and everything else that is coming down the pipe.  While in a perfect world, you would outsource those functions to experts to manage them, there is not always the funds or resources available to do so. Therefore, when an investor (venture capital, angel, etc.) to your company offers to take the accounting function off your plate, it is very tempting to let them do it.

Usually, they will do it for free or very cheap.  This seems like a win/win right?  You get a major function and process of your business off of your plate and you get to utilize the scale of your investor do the job right.  However, this may not seem like the slam dunk that you think it is.  If your investor takes over the accounting process in your business, they are taking control over a major part of your business and you may not even realize it.

The accounting function is an integral part of any startup.  The data obtained from keeping accurate books and records allows you to make actionable decisions in running the business.  Keeping accurate books and records also helps you manage your cash flow and run the business in a functional way.  A lot of startups will outsource this function to a CPA or accounting professional that they have chosen and who is aligned directly with their business and its founders.  They are a critical ally to the success of the business.  However, if this function is outsourced to the investor’s team, you have now lost that ally to your business.

The investor and the founders of the company do not always have the same goals for the business. The investor’s first goal is the integrity of their investment and the ability to obtain a return on their investment.  The outsourcing of the accounting process to the investor can strip away the startup’s ability to make real time actionable decisions.  The investor’s accounting team is beholden only to the investor and the ability to get data from the books and records may become difficult or not timely.

Allowing the investor to own the accounting process allows them the ability to question or second guess your expenditures or take control over the cash management process.  The founder becomes then almost an employee to the investor and loses the ability to maintain control of the financial management of the business.  Losing control of this means losing control over a substantial part of the operations of the business.

It is critical for founders of a startup to be able to control and manage their business.  Using outsourced assistance in doing so can be a very important part of managing the business. Therefore, it is important to chose those experts wisely and make sure they are aligned with your vision of the startup.  Outsourcing critical functions to the management of your investor may seem prudent at first, but doing so also allows the investor take control over a major function of the business and founders need to know the control they are giving to someone with different goals of the startup.  Outsourcing the accounting function to a CPA or accounting professional of your choosing allow you to maintain that control.

About Josh Lance

A licensed certified public accountant (IL) and Chartered Global Management Accountant, Josh is also a family man who calls Chicago home.  Before venturing on his own with a mission to help small businesses, Josh spent his early career at a top-10 national public accounting firm before working at an ultra high net worth family office.  Josh is also an adjunct professor at Northwestern University in Evanston, IL.  He enjoys making wine at home, cooking, traveling, and cheering on his favorite football and soccer teams. Josh was honored by being selected to the 2017 class of the AICPA Leadership Academy and was named as one of the 40 under 40 in 2017 by CPA Practice Advisor.