building a day 1 finance tech stack

TLDR: QBO, ADP PEO, Mercury, Ramp, Stripe

There are a few functions that fall under the “keeping the lights on” category for founders. Most important are:

• Bookkeeping

• Paying your employees

• Managing your cash

• Paying your vendors

• Collecting revenue

The explosion of finance apps for businesses over the last few years has given founders more options than ever and it can be hard to separate the signal from the noise. It is difficult to build a day 1 ops stack with cost in mind that will scaled with your business and you may need to make changes over time, but the basics described below should be able to get you through your Series B without creating unnecessary manual work and giving you maximum visibility into your company’s finances.

Bookkeeping

Bookkeeping is by far the least sexy of all of the finance functions and typically the one that gets the most amount of love. If you’re able to master your bookkeeping early on, you’ll naturally have a reliable source of truth for revenue reporting, budgeting, and forecasting, plus you’ll avoid a ton of headache down the road (your future chief of staff will thank you 🙂).

My advice here is simple: use QBO (QuickBooks Online) and outsource the actual bookkeeping to an accounting firm. I only have experience with Pilot.com and I can say with 100% certainty that you should not use Pilot. They are by far the cheapest and will sell you on their software solutions, but at the end of the day their marketing team works harder than their accountants, who are all outsourced overseas and wouldn’t know revenue accounting if they got hit over the head with it.

My advice for selecting a bookkeeper: stay local, find someone who’s willing to build a relationship with you and get to know your business, and use a referral - don’t go in blind without knowing someone who’s been successful with the firm you choose.

Paying your employees

While you may not be planning headcount growth anytime soon, you as founders are your company’s first employees. Ensuring a top-notch employee experience is the most important undertaking as you begin growing your company, so always evaluate the outcomes of your decision making from the employee perspective, not the employer perspective.

Although this will not be the most cutting-edge solution you implement, selecting a payroll and benefits provider will have far-reaching consequences and can make or break your ability to recruit and retain the talent your business needs to succeed.

Choosing a PEO (professional employer organization) to provide all in one payroll, benefits, workers comp, and compliance services, rather than selecting different vendors for each function, creates an incredible amount of administrative leverage that will allow you to focus on recruiting rather than compliance. To see more information about PEOs, see here, but the bottom line is that for fast growing businesses that want to be able to hire flexibly (ie in all 50 states) without creating enormous amounts of compliance overhang that consume endless time on menial tasks, a PEO is the way to go.

I was personally involved in the evaluation of TriNet while I served as Chief of Staff at SafeBase. The company had initially selected Rippling for payroll, benefits, and mobile device management, but Rippling’s self-service model created a ton of busy work for the founding team as new hires were made in states the company hadn’t yet registered in. Registering for business in each state alone, to say nothing of the additional admin work created, was a convincing argument for moving to a PEO.

Alongside TriNet, we also evaluated Sequoia Consulting Group and Rippling’s PEO. Ultimately TriNet was selected due to its size and history of service as a PEO, as well as the actual human hours that were available to us. We learned that it is incredibly easy for PEOs to promise tons of value add services that don’t materialize into much actual operation help for you as a founder.

We decided against Rippling’s PEO as Rippling’s services were extremely expensive relative to the larger, more established players in the market, as well as the fact that the company’s security team had transitioned MDM from Rippling to Jamf. I’m hoping to write an entire post about why startups should not use Rippling, but the gist is that Rippling’s services are extremely sticky due to their mission critical nature across different functions which makes it extremely difficult to transition off of Rippling entirely.

The only option we didn’t investigate that we should have is ADP, which we learned too late can offer better employee benefits at better pricing than TriNet. Otherwise, the transition to TriNet was smooth, though there were times that we could have been better supported leading up to the first pay run.

Whether you select ADP or TriNet, a PEO will smooth the path forward as you begin hiring, give your employees access to benefits otherwise unavailable to small businesses, and help you avoid administrative busywork that distracts you from the real work of building your business.

Managing your cash

The collapse of Silicon Valley Bank pushed the fragility of cash management practices into the spotlight and spurred almost instant innovation in the industry. As a founder one of the most important decisions you’ll make early on is your bank.

I’ve worked with banking partners at Mercury, Brex, Chase, and Cross River Bank in various business banking capacities, and when selecting a bank it’s important to consider:

1. Available deposit insurance - $250K is the standard but the best providers use deposit networks to increase that amount to up to $5M.

2. Product offerings - while the operating account is the core feature of your banking relationship, access to capital / debt, savings products, cards, and other features should also be considered.

3. Relationship management - there is a big split in service levels between traditional business banks like Chase and fintech banks like Mercury. While you will likely get a dedicated relationship manager from a traditional bank, their primary function is to sell you more products, not help resolve issues. On the other hand, the customer success team at providers like Brex are quick to reply but not particularly helpful in resolving issues either.

Ultimately, I have preferred working with Mercury from both a product offering and technology perspective. They make it incredibly easy to get set up with checking or savings accounts, debit or credit cards, and lending partners. Mercury also offers up to $5M of FDIC insurance which is great for peace of mind. You may eventually want to diversify to more banks as you raise more funding, but Mercury is a great place to start. I typically advise against Brex, as their product focus is more on their Empower expense management platform, which is only available for paid users, with banking as an ancillary product.

Paying your vendors

I’ll pause here to note that Mercury has great (free) out of the box tools for making payments via ACH, check, or wire. Theoretically you don’t need to use another tool, but once you raise a little money it’s a good idea to get access to business credit. Brex is far and away the incumbent in the space, but to maximize transparency and automation, I recommend using Ramp.

I’ve used both Brex and Ramp for account payable, and Ramp does a much better job of providing instant visibility into your spend (recurring and non-recurring), helping you manage an ever-growing list of software vendors, giving you tools to control spend (virtual and merchant cards), and 1.5% cashback on every purchase is much more preferable in today’s economic environment than Brex’s points.

Ramp has a super simple system for managing A/P that encourages companies to set up a spend approval process early and tracks all of your different payments (ACH, card, etc.) in one dashboard. It’s easy to automatically capture invoices via inbox forwarding - I suggest setting up an “[email protected]” email now so that you can segment these emails away from your general finance or other distribution list.

As a last selling point, Ramp’s employee expense management platform is by far the easiest to use that I’ve come across. They have integrations for Amazon, Gmail, and Outlook that automatically scans employee inboxes for receipts and matches them to transactions made by corporate cards (infosec approved!). While there is an age old debate between giving employees cards and having them submit reimbursements that I will dig into in another post, I am of the opinion that, with proper controls in place, you should be able to trust your employees to be responsible with a corporate card.

Collecting revenue

A large and very fragmented market for B2B payments has emerged over the last 10 years. Simple platforms like Stripe make collecting revenue extremely easy, while Chargebee, Paddle, and others are much more complicated to implement, but sell themselves on the promise of simplifying usage-based or other pricing models.

As with most of the advice I have to share, start simple and optimize for cost. Rather than spending tens of thousands of dollars upfront on a SaaS payment platform, it’s better to pay Stripe’s 2.9% per transaction processing fee + another 0.5% for invoicing. It is extremely likely that your pricing model will change over time, so ensure you can move quickly to reflect those changes in your billing and collections model.

Along with Stripe for payments, you’ll also need to collect sales tax. This is something that founders can be unaware of or choose to deprioritize long after a Series A, which is fine, but if you want the quick answer here, I’d go with Anrok. Setting this up early and letting it scale with you, while it may require some upfront work, will help you avoid a large tax bill down the road.