Navigating New Waters: Your Post-Acquisition 30 Day Accounting Roadmap
Starting a new journey as a business owner can be an exciting yet challenging endeavor especially when you've just acquired a business. The first 30 days are crucial and can set the tone for how your venture will progress. A major area of focus should be managing the finance and accounting function of your new business. This post will walk you through a 30-day accounting plan that will aid you in seamlessly navigating the finance and accounting needs of your newly acquired business.
Guiding Principal: ‘Do no harm’ to your cash cycle
The quickest ways to cause early pain in your new business are to:
Deplete your upfront working capital by interrupting normal billing and customer payment processes
Mess with your employees’ and vendors’ pay (unless you are seeking to actively kill any incumbent vendor relationships)
To avoid this, consider sticking with ‘status quo’ for the following systems, until you have a clear action-plan for transition:
All of the systems that produce how much you charge your customers and collect from them: project management, time tracking, invoicing, payment collection, point of sale.
Week 1 - keep the plates spinning
Register with the IRS and your state to obtain an EIN (employer identification number). There are a ton of following steps that this will prohibit you from completing.
Set up the new entity’s bank account
Gain access to the most critical systems that the company was using. What is critical? Ask yourself ‘will not having this keep me from getting paid?’ or ‘will not having this keep me from paying the people/companies that I need to get paid?’
Figure out what your service scheduling/invoicing/payment cadence is with your clients to reduce interruptions for sales/service and collection
Figure out your payroll schedule and make sure payroll goes uninterrupted from regular cadence (the easiest way to start off on the wrong foot with your employees early is to mess up their first paycheck!)
Same goes for KEY vendors (the rest of them can wait)
Make sure everything that impacts your cash flow is transitioned as quickly as possible.
Week 2 - reassemble the pieces
Call your bank or the bank that the previous company (aka OldCo) used if they had a line of credit to get it reestablished. Important to do this early because it make take weeks, or even months to ‘re-underwrite’ since it’s a new borrower to them. For some of you, this may not be necessary because the business was upfront capitalized with sufficient working capital consideration.
Gain access to the old set of books if you can and export everything you can get out of it before subscription lapses:
Historical Profit & Loss plus Balance Sheet by month for last 3 years, general ledger/journal detail
Create a new account in Quickbooks Online (aka QBO) - we’ll assume to use this system as it is appropriate for +90% of SMBs. For most, Essentials or Plus are sufficient subscription tiers to start.
Start building your chart of accounts in QBO, as well as Products and Services if you intend to use them. If you don’t know where to begin, hopefully OldCo can be a starting point, or use the diligence-adjusted financial statements if those were clearer for reporting.
Link your bank feeds in QBO (NOTE: you need to go back to day 1 of the operating accounts being opened including funding so you don’t have to worry about balance mismatching come reconciliation-time. Catching up on historical transactions can wait.)
Link your other systems that connect directly (many systems have direct connection - we recommend building out the COA and products and services beforehand because you often need to map items in other systems to them). This will be a bit of trial and error if you aren’t working with a professional.
If you’re retaining your existing accounting team, make sure they have what they need to post other entries from other systems not directly connected to QBO
It should go without saying… but make sure your accounting team stops recording transactions in the old set of books! Some bookkeepers truly treat their tasks robotically and may not have taken into consideration that the old set of books are not going to be used anymore…
Week 3 - lets start building! It’s why you bought this business
Reference the diligence materials and old books to see what accounting was performed improperly or needed the most adjustments during the deal process. Bring in an outside professional if you don’t have experience with dealing with process changes and cleanups. Try to get the processes that you know were ‘off’ fixed before they start accumulating on your fresh set of books.
Build out a weekly cash flow forecast to give yourself some comfort around what your payment and collection cycles look like. Do this especially if you bought a distressed asset that was cash flow negative to give yourself a ‘get right timeline’. This is hopefully something you only need to manage in the short run for cash-flow hiccups during transition.
Week 4 - gaining traction
Time to get to work - perform a thorough review of the systems, structure, and process for how the accounting is performed. Start with the end in mind :
‘What are my current financial statements NOT telling me?’
‘What could help me run this business better if I had regular reporting of THIS datapoint?’
Decide what needs to be ‘click of the button’ capable vs. ad hoc with a little data manipulation. Overcomplicating your P&L and Balance Sheet to report things you’ll need maybe once or twice a year is a common pitfall. Try to keep it as simple as possible and as complex as necessary.
Create a laundry list of desired outcomes and rank them on urgency and importance. Traditional accountants/bookkeepers can be poor at this prioritization as they often don’t understand the managerial value of the output, so give them guidance here.
Work with your accounting team or an outside professional to determine what is necessary to achieve the improvements and what tradeoffs to expect. Accurate, useful and timely can sometimes be at odds with each other (for example, accrual basis financials are more useful, but sometimes result in delays in reporting). Determine what software tools and processes can be built in to minimize time and maximize usefulness and accuracy.
If you have a more seasoned accountant, they may be less versed in the ecosystem of tools that integrate directly with QBO. If OldCo was in QBO Desktop, they’re DEFINITELY unfamiliar with them. Consult a professional to discuss the tools that work best for your specific industry and how best to integrate them with QBO
Post Week 4 - building momentum; keep driving improvements
You’re off to the races! Keep tabs on how your accounting team is tracking towards the improvements laundry list. Give them clear guidelines on expectations to deliver closes by a certain date. If they resist or don’t meet those guidelines, work with them to remove roadblocks - consider bringing in an outside advisor to tackle these challenges
Build a financial forecast model that forecasts your P&L, balance sheet and cash flow statement monthly (to be discussed in another post). Use your monthly closes to update and compare to plan.
Create a cadence around the collection, reporting, and analysis of data. Determine what action items your financials tell you for making improvements in your business. Go tackle them. Rinse, repeat.
Laundry List of Systems to Gain Access To/Set Up:
Invoicing / project management / job tracking / time tracking
Point of sale / Stripe / Square / etc.
Payroll / HRIS
Bill pay / expense reimbursement / company card
Inventory management
Fixed asset managenent
CRM / Contract Management
Sales tax reporting / collection (Avalerra, etc.)
tips to consider:
You likely bought the business as an asset sale, meaning fresh legal entity and fresh set of books. This does not mean you need to start the rest of your software ecosystem from scratch:
Talk to your Payroll/HRIS system about the acquisition and new legal entity. They should jump through hoops to help you maintain continuity to retain your business. The goal is to keep the system as seamless for your 1) employees 2) HR 3) accounting team as possible, while ensuring your employees’ W2’s properly reflect how much they were paid by OldCo vs. NewCo.
Most of your other systems can be maintained, just unlink them to the old GL system (assuming QBO for most of you), and link them to your new entity.
Make sure that whatever legal entity information change that your customers/vendors/employees see get renamed in the systems.
Make sure that the existing systems have rerouted to your new bank so payment goes to the right place.
