Raising venture capital can be a transformative step for any company. It shows investors that you run a solid, well-managed business. But before impressing them, you need to get your finances in order. Investors always expect transparency, professionalism, and credibility – and your accounting practices can play a significant role in meeting those expectations.

Are you looking to raise your business capital? Check out the following essential accounting tips that can help you prepare for the next fundraising round.

1. Leverage Trusted and Standard Accounting Software: Are you still using the old conventional method of managing your company’s finances? Instead of struggling with spreadsheets, it’s time for an upgrade.

Look for a digitally-advanced accounting system to record your finances. It is one of the easiest steps to show investors that you are serious about your company’s reputation and are likely to go with the flow.

Some standardized accounting tools you may prefer are – QuickBooks, Xero, etc. These platforms allow businesses to raise their fund smoothly. A few perks you may enjoy with these systems are –

• Reliable and professional reporting
• Easy bank integrations
• Consistent expense tracking
• Automated invoicing and payroll features

Besides, these advanced accounting systems can produce standardized financial reports that include – balance sheets, cash flow statements, and profit and loss statements. Potential investors can easily go through these data to determine the financial condition of your venture.

Tip: Introduce a proper accounting system to organize a chart of accounts and create categories that align with your business activities. Probably, enlisting the help of an accounting expert can save you time, prevent costly mistakes, and ensure everything is set up correctly from the start.

2. Focus on Proper Financial Record Keeping: Venture capitalists are often interested in checking out the books. Hence, when an investor finds all your records organized, up-to-date, and reconciled, it immediately boosts your credibility and proves your business is well-managed.

Here’s what a clean book looks like:

• Every transaction is recorded and categorized.
• Bank and credit card statements are reconciled monthly.
• Outstanding invoices and unpaid bills are tracked.
• Assets, liabilities, and equity are accurately reported.

In contrast, if they find any inconsistencies, unexplained expenses, or missing receipts, they raise concerns and cause delays during investor due diligence. Of course, you don’t want a potential deal to be canceled just because of your unorganized bookkeeping. Aren’t you?

Tip: Managing clean books can be time-consuming and overwhelming at times. Even if you plan to perform regular internal reviews and reconciliations, the entire process can be too tiring. Of course, hiring a professional bookkeeper or outsourcing accounting services can reduce this headache.

3. Categorize Expenses Properly: As mentioned earlier, investors always look for a clear picture of how you are spending money. Therefore, when investors analyze your financials, they want a clear picture of how you’re spending money. Inaccurately calculating expenses can create confusion, and such a scenario may make capitalists think that you are not managing your budget wisely.

So, take your time to properly characterize your expenses. These include –

• Research and Development (R&D) – Prototyping, testing, and product development costs.
• Sales and Marketing – Advertising, customer acquisition, and branding expenses.
• General and Administrative (G&A): Office rent, utilities, administrative salaries, and professional services.

Accurate expense categorization helps investors understand your cost structure and enables you to maximize any applicable tax benefits. This further may assist you in making strategic financial decisions.

Do you know? Investors may not expect your metrics to be perfect, but they do expect you to understand and track your key performance indicators (KPIs). Be familiar with the KPIs and know how to evolve them with the growing business.

Tip: To ensure accurate expense categorization, establish clear internal policies for expense reporting and provide training for your team. Regularly review these categories to make sure transactions are consistently and correctly coded.

Conclusion

Clean books and organized records always lead to closed deals. So, before stepping into the fundraising arena, it’s crucial to prioritize building a solid accounting foundation.

Remember, venture capitalists aren’t just investing in your idea. Instead, they are more investing in the way you run the business. Efficiently managing finances today sets the stage for a smoother, faster, and more successful fundraising journey tomorrow.

Need any help? Consult with our experienced CFO in California and get your books in shape.