Why do some start-ups “make it?” A lot of credit tends to go to hustle and hard work. Having a great idea at the core of the business doesn’t hurt, either. And, let’s not forget to the value of a great team.
But to augment these advantages, tech savvy entrepreneurs are increasingly looking to software to accelerate productivity and promote better decision making. Capable financial and business management software is itself becoming a primary start-up success factor.
Start-up success: A look at the odds
Starting a business isn’t an unusual decision. According to a recent BusinessWeek.com piece, “Startup Rates Surge in the U.S. and Abroad,” a staggering “400 million individuals all around the globe are engaged in entrepreneurship.” In fact, the same article noted that 12% of US adults reported starting a business in 2012.
But while starting up is common, the odds of keeping the doors open are worse than might be expected. According to numbers on start-up business failure rates published by Entrepreneurship Weekly (via StatisticBrain.com), 71% of business will have closed up shop within 10 years.
Examining the factors determining success and failure
The numbers raise the question: Why do so many business fail to achieve success? There are, of course, many reasons. And, let’s be honest, there’s no shortage of articles and studies claiming to have pinned down exact causes. But whichever sources you consult, a number of usual suspects pop up. Consider some of the reasons cited for start-up failure in a recent New York Times blog from serial entrepreneur Jay Goltz:
- Poor accounting
- Operational mediocrity
- Operational inefficiencies
- Dysfunctional management
Note that each reason highlighted above is internal, management-related, and ultimately controllable. But how do you exert control over these risks? The old adage of “work smarter, not harder” is easier said than done. That’s why entrepreneurs are increasingly looking to capable accounting and management software platforms as a preferred means of control.
Consider the issue of preventing operational inefficiencies, for instance. There are many management tactics for attempting to drive productivity and limit inefficiency. The most obvious options are things like incentivizing staff, investing in additional training, or simply pushing employees to work more hours. But in a study published by the Institute of Management Accountants that surveyed 1,726 organizations, increases in productivity were most commonly driven by improvements in business processes or technology.
In today’s competitive market, improved productivity, along with access to timely business intelligence and the ability to consistently reduce costs can be the difference between making it over the start-up hump, or not. Robust software represents a tool for achieving these objectives which entrepreneurs can no longer afford to overlook.
So given the importance of your software choice and the fact that your time as an entrepreneur is precious, there’s no need to delay. Let’s dig right into the four things you should know when selecting your accounting and business software.
1. The early bird gets the worm.
The sooner you get software in-house, the sooner you begin reaping the benefits. It’s really that simple.
The entrepreneur’s day is long. Securing investments, creating a legal business entity, hiring, establishing a web presence, opening bank and merchant accounts, developing product and service offerings… The to-do list goes on and on. When time is the most elusive asset, buying an accounting software package can look like something that can be delayed.
It’s worth purchasing software early for one main reason, though: Software’s purpose in life is to help you work smarter and faster. Ask yourself this question: Is there ever going to be a more valuable time to multiply your ability to get-things-done than during a business launch? Probably not.
Also, it’s important to understand the scope of today’s accounting software. Most systems do much more than what falls under the traditional definition of “accounting.” Contemporary accounting and management systems provide automation across a full range of business tasks. To illustrate, here’s a simplified breakdown of common software functionalities applied to support four main departments within a growing start-up (Finance, Operations, Sales & Marketing, and HR):
Virtually any start-up task can be accelerated and improved with a capable business management and accounting software suite. For instance, let’s examine the process of raising capital.
Most entrepreneurs spend an enormous amount of time manually creating business projection documents to share with investors. Countless hours can be saved leveraging existing budgeting software tools. Budgeting modules not only help you quantify expected revenues and expenses. They’re designed to help you quickly synthesize complex projections into clear, impactful information. A rigorously vetted set of documents, attractively laid out, is exactly what you need to command the confidence of prospective investors. (Check out our guide on budgeting software for more information.)
2. You don’t have to pay right now.
The price-tag associated with accounting software is an entirely valid concern. After all, when you are starting a business, there are many demands on capital: facilities, salaries, and equipment—to name but a few. To complicate the issue, before you’ve launched your business, cash tends moving in one direction: … away! Sending more out the door can be hard to do.
But great software no longer requires a major upfront capital expenditure. There are many ways to spread software costs out over time. Software as a service (SaaS) or cloud solutions are available on a subscription basis. Even vendors of traditional client/server software are becoming increasingly more likely to offer installation based payment offerings. (If you’re wondering if SaaS software is right for you, check out our article: “Understanding the Cloud.”) For companies who prefer a software purchase to a leased approach, there’s a growing niche industry of lending companies who specialize in providing software financing.
3. You don’t have to do it all yourself.
You’re right. Proper software implementation can be time consuming. And, here’s a dirty little secret of software marketing: Don’t believe the hype when you hear a claim of “turnkey” or “plug-and-play” software solutions. A full accounting package is necessarily a complex, set of wide-ranging functionality. Of course it is. It has to be, if it’s going to fully meet the wide-ranging demands any successful company will place upon it.
The bottom line is that there is going to be a software learning curve. However, you can massively accelerate that learning curve. Many start-ups, often compelled by capital concerns, will look to handle the software set-up themselves. Generally, this is a mistake. Not only are you at a critical moment where every second of your time is in demand, but the set-up of your software will have long-term effects on ongoing business processes. An experienced software partner can help you install and configure the software much more rapidly.
Software isn’t a commodity. It is a solution that needs to be configured to your needs—at least, if you want to get the most out of it. An experienced software implementation specialist can help you establish costs centers, proper account structure, security settings, and integration with other existing systems.
Yes, there is a cost to having your solution professionally installed and configured. However, it’s an investment that will continue to pay back every time you use your business management software. As David Walsh, an expert on outsourcing, was quoted as saying in a recent article on Entrepreneur.com, “Small business, augmented by a global pool of human capital, can compete directly with the biggest players in their space, and win.”
4. You’ve got one chance to start fresh.
Don’t let the fact you have only one chance to start fresh scare you. It’s a golden opportunity your established competitors wish they had another shot at. In her article, “8 Accounting Pitfalls that Start-Up Businesses Can Avoid,” author Krisca Te made a great observation about the cumulative nature of accounting: “Accounting is a cascading function. If you don’t get this month right, there’ll be more to do next month. The problem will only grow.”
The truth is, as a start-up entrepreneur, you have an advantage over other software buyers. You have little or no data that needs to be converted from existing systems—which can be quite expensive for older companies switching systems. You also haven’t had time to establish any bad habits or even just plain old inefficiencies. You’re able to optimize workflows in your new system without running into user backlash, integration obstacles, or problems updating existing data.
Starting fresh also involves looking forward. Finding the right solution to scale with your company as you move through a period of rapid growth can help you avoid an expensive and time-intensive software conversion a year or two down the line. The last thing a fledgling business needs is the disruption of having to put weeks or months towards switching away from an existing program that’s not getting the job done.
Moving forward with the right software
Start-up is a hectic time. Selecting the right software is by a long-shot not the only thing on your radar. But your software choice will play a big role determining your effectiveness at meeting many other challenges your business will face.
Here’s the good news though: If you educate yourself about available software options and selection best practices, the odds are strong that you will make a purchase decision that not only gives you an advantage against other start-ups, but established competitors as well.