Lean Accounting for Startups

THE MINIMUM VIABLE PROCESS

These days most of us have heard of the ‘minimum viable product’.

In his bestseller “The Lean Startup”, Eric Ries introduces the concept of the  ‘minimum viable product’ for startups.

A year or so later, in the foreword to his book Lean Analytics Mr. Ries points out that:

if you’re reading this, you probably know some of our most popular additions to the business lexicon:

  • pivot
  • minimum viable product
  • build – measure – learn
  • continuous deployment

or Steve Blank’s famous “get out of the building”.

Some of these you can already buy on a T-Shirt….

VentureTimeline

By Grow VC – Own work, CC BY-SA 3.0

In trying to describe a simple bookkeeping process for “micro businesses”, I pilfered Eric Ries’ terminology and “re-purposed” it to refer to the kind of simple, cash-basis bookkeeping systems that our clients used when I was getting my practical experience as a public accountant during the 1980s.

The Lean Startup

Of course a lot has changed since then, which means that our MINIMUM VIABLE PROCESS is actually much more efficient than it used to be before the days of online banking and powerful spreadsheets.

While cash-basis accounting isn’t allowable in Canada (except for farmers and fishermen), most CPAs that work with small, local businesses can easily convert a good set of cash-basis bookkeeping records to an accrual basis. It usually requires 3 or 4 extra adjusting entries to set up payables, receivables and (if necessary) inventory as at the end of the year.

As you’ll see, it is very easy to train non-accountants to keep their books on a cash-basis. What’s more, it is much easier to work with a good set of cash-basis records, than a full-accrual system maintained by an inexperienced (and disinterested) part-time bookkeeper.

The problem isn’t that bookkeeping software isn’t any good.

These days there are a number of excellent small business accounting packages. However, no matter how well-designed the software (despite what software vendors would have you believe), bookkeeping software still requires some training AND EXPERIENCE if you expect to use it effectively.

Can a business owner learn to be a good, ‘full-cycle” bookkeeper?

Of course.

But most people don’t go into business to become bookkeepers (or accountants for that matter). Human resources, sales and operations are inevitably much more important – particularly for startups.