Even the founders were surprised how the platform was taking off. Although they expected some success, they were shocked when the few transactions they got from beta testers began to grow exponentially. What they didn’t know was that things were going to get really messy — really fast — because they didn’t factor in the accounting workflow into their project development plan.
In addition to fixing bugs, managing the team, and keeping investors happy, the founders began spending nights and weekends doing — of all things — the bookkeeping. So why was that, and how do we solve the problem? Let’s find out.
The Complexities of Crypto Accounting
Truthfully, a simple QuickBooks setup doesn’t take much time, thanks to the user-friendly UI. Hook up your bank accounts, set up a few rules, and QuickBooks will do the rest. How hard can it be?
QuickBooks is deceptively easy to set up, but it can’t quite handle crypto accounting. It may not seem like the best use of an executive’s time, but crypto accounting is complicated and must be managed outside of QuickBooks. Many founders don’t keep good records, or if they do, it’s a manual process involving multiple spreadsheets, manual gain/loss calculations, and manual uploads into QuickBooks.
Prevention Is Key
Here’s the catch: without a well-thought-out plan of what your system needs now AND later, you’re setting yourself up for big trouble. QuickBooks rules don’t always work as expected, your crypto record-keeping may be lacking, or worse, you may be like the many other companies waiting for year’s end and letting the CPA handle the crypto accounting and cleanup during routine tax filing. Frankly, most CPAs don’t have the time to fully dedicate to crypto accounting.
We see this a lot, and we know that spreadsheets and after-hours accounting headaches don’t make for a scalable business. Fortunately, you can avoid these problems. When developing your app, remember that just as you spend time thinking about the next product developments for your app, you need to have someone thinking about your accounting system the same way so it can accommodate your growing business. As you are developing your product road map, you also develop an accounting road map to support it.
How Will an Accounting Road Map Help Us?
Because accounting isn’t sexy, or maybe because it isn’t a customer-facing operation, accounting is usually an afterthought. We know. Accounting is boring. It’s tedious, and with software, it doesn’t seem to be all that hard.
Yet, while automation has streamlined much of the tedium of accounting, an out-of-the-box accounting software setup does not generally work well in the crypto space. You may realize you need a third-party software solution to help you manage your digital assets. But with a growing list of options, you may be wondering, can I use one of the off-the-shelf software solutions, and which is the right one?
If you are considering this path, keep in mind that things can get really messy, really fast. Here’s how: if, for example, you want to start measuring product line profitability, and you haven’t set up your books properly from the beginning, you would have quite a bit of backtracking to do to recreate that history, repurpose existing accounting system functions, or put together a workaround. It would also require retraining to be able to code things differently.
Think of it this way: imagine you’ve built a house. If the foundation of your house can only support two floors, and you now want a five-floor, multi-family home, you would need some serious engineering to make that dream a reality.
In our experience, it takes twice as long to unwind messy books, and it’s at least twice as expensive. Not to mention, when it comes to accounting system setups, you need to consider your tech as it is now, as well as how it will be. For instance, are you planning on expanding to different product lines that would need to be tracked? Will the business or the transaction-recording process become more complex over time?
7 Questions to Assist You in Developing Your Accounting Road Map
When developing your accounting road map, ask yourself these seven questions:
- What different product lines or service offerings will you build?
- How will information flow through the system? Is it an automated feed? Does this need to be built into your core product road map?
- What’s the reconciliation process of the information coming in from third-party systems? How do you know every transaction is being properly recorded?
- If you are transacting in crypto, have you properly recorded transactions with adequate cost basis?
- What are your current and future product lines, price points, and revenue streams?
- Do you think you might divest a portion of the business?
- How are shares distributed? Are you adequately capturing the capitalization table?
The right team can help you take these seven questions and boil them down into a development plan for your accounting function that can keep pace with your business as it grows. Accounting for transactions may be the last thing you want to think about when there are so many other pressing issues. However, it is WAY easier to set up your transactions properly from the beginning than to try to retool your accounting after you have loaded in a ton of transactions. If you need guidance, be sure to give us a call.
