Selling goods and/or services is really the key to any business. So for most startups, quality control and the management of customer relationships should be front and centre. Whether you’re attempting to define your Minimum Viable Product or merely establish good relations with your customers – and make sure that you get paid, the billing function is key and is an unlikely candidate for outsourcing.
For early stage companies who are focused on the development of their “minimum viable product” this is particularly true since each sale is a valuable learning opportunity. The billing function should not be left to outsourced bookkeepers and accountants who aren’t focused exclusively on your business.
Of course the nature of the billing function will depend on what your company is selling. For companies selling goods at retail, billing isn’t as important as pricing and controlling cash. And managing customer relationships is different than it is for service-based businesses.
Recording sales (and billing) is always a job for your in-house staff. The bookkeeper is typically best at managing receivables for services or business to business (B2B) sales. For retail businesses, it is recommended that the bookkeeper accounts for cash and that someone else is responsible for the physical handling of cash. This is generally referred to as the “segregation of duties“.
GST / HST and PST
There are invariably tax filings required relating to sales. Most often these are handled fairly well by experienced bookkeeping firms. An annual review by your CPA is generally done as a part of any year filings.
The most important thing to remember is that recovering GST (or HST) tax credits requires that you register.
For pre-revenue startups there is clearly no need for the billing and receivables functions. Instead there should be a concern about the ‘burn rate’ and cash flow generally.
Earlier I spoke about a former client that was obsessed with not being subject to regulation.
he was fond of saying:
I don’t want to waste my time bending down picking up nickels
His company failed to register for the Canadian Goods and Services Tax (“GST”) some 3 years earlier when they first incorporated the company. During those intervening 3 years they incurred at least $400,000 in development costs. If properly accounted for they could have recovered at least $15,000 refunds.
Of course a pre-revenue company is clearly developing new products or services – likely what Eric Ries would call your ‘minimum viable product’. An important consideration for Canadian startups is the extent to which your company might qualify for scientific research and experimental development tax credits.
If this is relevant for your company, there are additional record-keeping considerations that you need to consider (see “SR&ED Tax Incentives”).