How Cloud Accounting Makes Your Startup More Attractive to Investors
Cloud accounting—the process by which large businesses and startups alike can store, manage, and process data without the need for a local server—can be a key component in attracting investors to a new enterprise. Why? Because use of this cloud-based technology dramatically enhances a startup's efficiency, access to real-time financial information and, to a large extent, levels the playing field for businesses of all sizes to compete.
Here are five ways in which a startup's use of cloud accounting can help attract funding from sharp-eyed investors:
1. Greater Connectivity and Access to Data
Large companies have the capacity to develop in-house accounting systems that require huge data servers, skilled IT staff, costly hardware, and state-of-the-art security systems. Until recently, it was difficult for any startup with minimal resources to compete with such players in the marketplace. Cloud accounting has served to dramatically undercut this "established" advantage. As a subscription-based, service delivery model, cloud accounting enables startups to access advanced financial management technology without the deep-pocket investment of time and resources only a larger company can typically afford.
2. Enhanced Cash-Flow Management
Any startup in search of capital investments must demonstrate its ability to manage cash flow—the lifeblood by which that startup will ultimately succeed or fail. Investors expect to see detailed cash flow statements that demonstrate the startup's potential long-term viability. Previously, reviewing cash balances and prioritizing future expenses was a complicated, time-intensive process which many entrepreneurs, not being expert accountants by nature, struggled with and then fell short in delivering. Their inability to provide reliable cash-flow data caused many prospective backers to lose heart and look elsewhere for funding possibilities.
With a cloud-based accounting system, cash flow is continuously updated and adjusted as individual users report income and expense items. Consequently, entrepreneurs know and can demonstrate to prospective investors precisely how much liquidity is available for positioning the startup for future growth opportunities.
3. Ability to Focus on Core Development
Without the need for an elaborate IT infrastructure including an in-house team of specialists, startups can also demonstrate to investors their ability to stay within budget and to more resourcefully use the funds they have for new product research and development. "By improving the efficiency of your accounting system, you have more time to focus on what is important," writes accounting expert William R. Barefoot, CPA. With a cloud-based accounting system, Barefoot adds, businesses have "more time to do the most important tasks and help you get that edge over your competition."
4. Improved Teamwork and Collaboration
Startups sometimes need to make financial-based decisions at lightning speed, a difficult process if they're forced to depend on "traditional" accounting systems. With cloud-based accounting systems, startup owners, partners, managers, and staff can communicate and collaborate in real-time, using accounting data retrievable on their phones, tablets, laptops, and other devices. This nimble use of business intelligence is yet another way in which a startup can prove attractive to investors.
5. High-Level Data Security
Another area in which large, established companies outflanked startups has been in the arena of data security. What fledgling enterprise can compete against advanced internal security systems and a full-time IT team? These days, as investors are coming to realize, data security and availability are no longer differentiating issues. A cloud-based accounting system safeguards a startup's records by providing:
- Automatic backup
- Dedicated firewalls
- Encrypted data storage
- Servers located in specialized data centers with built-in redundant Internet connections, routers, and power generators
Startups utilizing cloud accounting can legitimately boast to potential backers that their data security measures match up to anything offered by the "big guys."
It's never easy for a new business to get and hold the attention of venture capitalists. But the use of cloud-based accounting systems to demonstrate efficiency and cost-effectiveness can be just the edge startups need to set themselves apart in a wildly competitive marketplace.