In this podcast episode, we discuss the unique issues associated with the accounting in a startup company. Key points made are noted below.

The Inconsistent Pay Problem

The accountant is one of the few people in the company who knows its cash position, and so may be asked not to cash a paycheck if cash levels are getting low. This is done in order to hide the cash situation from other employees.

Don’t get into a startup situation as a manager unless you’re willing to accept some pretty inconsistent pay. Also, minimize the amount of monetary sacrifice that you’re willing to make, because you may not make much money out of the deal. If you’re not in a financial position to take these kinds of risks, then it may make more sense to work for a larger business.

The Pressure to Fudge Financial Statements

The company president may put pressure on the controller to fudge the financial statements to create better results, which brings up major ethical concerns. This can be a significant concern, since entrepreneurs are more willing to bend the rules - including the accounting rules. When this happens, assume that the president will keep on pushing to see how far he can bend the rules, so the best approach is to shut him down at once with hard adherence to the rules. Also, call in the auditors for a backup opinion. Further, try to be pleasant when dealing with management, so that you can break the news gently that you won’t cooperate.

Dealing with Unrealistic Expectations

The management team of a startup company is usually very optimistic, which places additional pressure on producing financial results that match their inflated budget figures. In addition, their bonus plans create an incentive for them to create inflated revenue and profit results. The accountant needs to talk managers down to more realistic expectations, to reduce the pressure to fudge the financial statements. This starts with hard push back when the budget is produced, to focus on what is actually possible.

Ethical Concerns

In the wild and loose environment of a startup business, expect ethical issues to arise frequently - perhaps as much as once a week.

When the startup environment is simply too toxic, then the accountant needs to resign and look for work elsewhere. Otherwise, there is a risk of association with whatever fraud that the company may eventually commit.