It sounds very entrepreneurial. You actually liked the challenge of accounting because you weren't good at it initially, but then you dove in, figured out how it works, and found you had a passion for it.

Yeah, I'd say we've got a great team of people here who are super detail-oriented. All of our bookkeeping managers are excellent accountants who really know the numbers, the debits, and credits. My skills in accounting are less about the detailed numbers side and more about communicating what the numbers mean to stakeholders, investors, and entrepreneurs. One of the things we've focused on, and I know a lot of people are talking about AI—never heard of it, just kidding—you know, like AI can tell that T-Mobile is a cell phone bill in about two seconds and book it right. My bookkeeping managers may take three or four seconds to book it and create a recurring transaction. However, AI can't figure out cash transactions or a check with no backup. There needs to be some intervention, some reach out. So we've implemented a text message line, we're on Slack, email, and all the different channels that we can use to communicate with clients. I'd say my accounting superpower is understanding how to translate the basic debits and credits and zeros and ones into something actionable and usable that the entrepreneur can understand and present to investors to really grow their business.

That's a good point. At the end of the day, there's always new technology coming out, but we're in the people business, right? Whether it's me doing my marketing thing or you doing accounting, figuring out the big picture with that data and information, then communicating it to the appropriate stakeholders, is really the key. In your opinion, where do most startups fail? It sounds like death by a thousand cuts is where you'll hang your hat on.

Yeah, CB Insights came out with the top 10 reasons startups fail, and eight out of 10 of those are related to accounting and bookkeeping. The only two that are not are team issues and product-market fit. One of the tech startups I was involved with had those team issues where the CTO and the CEO just didn't get along, and there were pivots. But also, product-market fit—there's nothing accounting can do about that, and I think maybe that's your wheelhouse, Andy. Other than product-market fit and team, all the other issues are financially related. One is not being able to raise enough money or running out of money before hitting milestones due to lack of financial planning. That's a huge one where startups get caught with their pants down. Another challenge is compliance, especially with payroll taxes. Payroll tax liabilities pierce the corporate veil, meaning even if you have a corporation, you're personally responsible for paying people's payroll taxes. We see entrepreneurs chased by the IRS because they hadn't paid payroll taxes for two or three years, and their employees had filed tax returns. This can really shut a business down.

Business and occupation tax is another area. We had a client who thought they could just shut down their business and start a new one, and the business and occupation tax wouldn't find them. But a lot of these tax liabilities come back to haunt you. Another issue is not tracking numbers properly, so entrepreneurs don't know if they're actually profitable. For example, if you're selling a product that costs $15 for $10 to gain market share, you won't build a sustainable business. A famous failure is WeWork, which grew too fast without a financial model, assuming they could just raise money forever and never have to reach profitability. Locally, I know an entrepreneur in Seattle with a retail business who I've encouraged to increase prices. Her product is in high demand and has a cult following, but she won't increase the price due to concerns for her long-time customers on fixed incomes, despite rising costs. Good morning, everybody, and welcome to another NachoTuesday. Today, I have my good friend Andrew Klein here with Zccounting. So without further ado, Andrew, we'd love it if you could introduce what you guys do over there at Zccounting.

Hey, thanks, Andy, and thanks for bringing me on the show. At Zccounting, our mission is to prevent startup failure by fulfilling the financial silo in their business. This means we do everything from bookkeeping to taxes to anything involved with the numbers.

(00:34) Back in the olden days, I used to call myself the data angel, but now we've got a team of about 20 here in Bellevue. We also leverage a delivery team in the Philippines to help with data entry and some of the more basic bookkeeping tasks.

Awesome. So how did you get to this point in your career? Where did all this start, and how did you start Zccounting?

Yeah, so I actually tell the story that it starts way back when I was in college. I was studying in Paris and got to be the first customer of Starbucks in France. While in France, I was a French major and realized that if you take something from Europe and bring it back to the U.S., you can become an entrepreneur and possibly a millionaire, like Howard Schultz. So when I returned to the United States after studying abroad, I started taking business classes. My first class, which was the hardest class I'd ever taken, was Intro to Accounting. I actually got a C in that class, and I thought, if this is hard for me, it's probably hard for a lot of people. So I decided to take the challenge and study it further.

(01:02) When I graduated from college with my accounting degree, I worked at Moss Adams as an auditor, auditing large private and small public companies. Throughout the years, I was involved in early-stage tech companies, acting as the financial person—the data angel, the FP&A analyst. I worked with many early-stage tech companies and even a medical tech company. Eventually, while running an angel investment group, I realized there was a significant gap between young entrepreneurs and the investors who were funding these companies. Entrepreneurs often struggled to explain their numbers to investors. Additionally, many startups hadn't done bookkeeping before and would have significant liabilities for payroll taxes or run into IRS problems because they hadn't filed tax returns yet. The investor money would get sucked up into these expensive tasks of compliance. However, if you start from day one, a lot of this stuff is really easy and cheap. There are also many benefits, like the R&D tax credit or other tax advantages, for startups that help them have a longer runway and do better.

(01:31) It sounds very entrepreneurial. You actually liked the challenge of accounting because you weren't good at it initially, but then you dove in, figured out how it works, and found you had a passion for it.

Yeah, I'd say we've got a great team of people here who are super detail-oriented. All of our bookkeeping managers are excellent accountants who really know the numbers, the debits, and credits. My skills in accounting are less about the detailed numbers side and more about communicating what the numbers mean to stakeholders, investors, and entrepreneurs. One of the things we've focused on, and I know a lot of people are talking about AI—never heard of it, just kidding—you know, like AI can tell that T-Mobile is a cell phone bill in about two seconds and book it right. My bookkeeping managers may take three or four seconds to book it and create a recurring transaction. However, AI can't figure out cash transactions or a check with no backup. There needs to be some intervention, some reach out. So we've implemented a text message line, we're on Slack, email, and all the different channels that we can use to communicate with clients. I'd say my accounting superpower is understanding how to translate the basic debits and credits and zeros and ones into something actionable and usable that the entrepreneur can understand and present to investors to really grow their business.

(02:57) That's a good point. At the end of the day, there's always new technology coming out, but we're in the people business, right? Whether it's me doing my marketing thing or you doing accounting, figuring out the big picture with that data and information, then communicating it to the appropriate stakeholders, is really the key. In your opinion, where do most startups fail? It sounds like death by a thousand cuts is where you'll hang your hat on.

Yeah, CB Insights came out with the top 10 reasons startups fail, and eight out of 10 of those are related to accounting and bookkeeping. The only two that are not are team issues and product-market fit. One of the tech startups I was involved with had those team issues where the CTO and the CEO just didn't get along, and there were pivots. But also, product-market fit—there's nothing accounting can do about that, and I think maybe that's your wheelhouse, Andy. Other than product-market fit and team, all the other issues are financially related. One is not being able to raise enough money or running out of money before hitting milestones due to lack of financial planning. That's a huge one where startups get caught with their pants down. Another challenge is compliance, especially with payroll taxes. Payroll tax liabilities pierce the corporate veil, meaning even if you have a corporation, you're personally responsible for paying people's payroll taxes. We see entrepreneurs chased by the IRS because they hadn't paid payroll taxes for two or three years, and their employees had filed tax returns. This can really shut a business down.

(03:53) Business and occupation tax is another area. We had a client who thought they could just shut down their business and start a new one, and the business and occupation tax wouldn't find them. But a lot of these tax liabilities come back to haunt you. Another issue is not tracking numbers properly, so entrepreneurs don't know if they're actually profitable. For example, if you're selling a product that costs $15 for $10 to gain market share, you won't build a sustainable business. A famous failure is WeWork, which grew too fast without a financial model, assuming they could just raise money forever and never have to reach profitability. Locally, I know an entrepreneur in Seattle with a retail business who I've encouraged to increase prices. Her product is in high demand and has a cult following, but she won't increase the price due to concerns for her long-time customers on fixed incomes, despite rising costs.

(07:40) Metal and supplies and stuff to manufacture it. So, yeah, and I guess I could run through all the other things, but I think that's enough to show that really accounting is so important. Knowing your numbers, watching your numbers, and tracking your numbers will be the life or death of your business.

Yeah, totally. It's so easy to just want to launch an app or get something out there. You know, a lot of entrepreneurs are very creative; they're builders, they like to put together the product, but they don't think through the business fundamentals and whether the dollars make sense.

(08:05) Yeah, exactly. So I guess, what are some other good tips you would offer for startups to keep their finances in order? Especially from day one, once they're getting started, what are some concrete steps they could take to make sure that, as they're building a product or a company, they might not have enough money to hire an accountant and get that in order? What could any entrepreneur really do to set themselves up for success?

Well, I'd say we're really reasonably priced, so just hire us and then you're set for life. But realistically, our clients that I like the most—the best practices—are really when you start your business, treat it like a business from day one. Create a business bank account and open up QuickBooks. QuickBooks is 60 bucks a month, so it's not super cheap, but it's not unreasonable. If you have all your business bank accounts in your QuickBooks, you at least have the data there.

(09:00) The other thing is, there's a lot of co-mingling, especially with small businesses. If you're using personal credit cards and personal debt and your personal checking for business, you're not getting business credit for that or business deductions. So, again, think of the business as a real business.

The big challenge you don't want to mess around with is payroll. Make sure all the payroll stuff is clean and up to date. There are many great payroll software options. My preferred vendor is Gusto. Gusto payroll makes it really easy for you to run a basic payroll. There are also PEOs like Insperity, TriNet, or Justworks if you're leaving Microsoft and need benefits and stuff for your employees. Another great software is Rippling. They were a client in a previous life, but now they're pretty huge and have their own in-house team.

(10:00) There's a lot of great software you can use to comply with payroll and not have that stress and worry.

Yeah, I do feel like a lot of early-stage entrepreneurs find themselves mixing personal and business payments. Sometimes it's easier, maybe they're in a cash crunch between accounts. Especially once you get investors, you really don't want to mix those things. Those are investor funds, and you could get in big trouble if something goes wrong in the business. Co-mingling funds and having transfers to your personal accounts that don't go through payroll or a trackable method creates problems.

(10:51) Got it. Do you have any tips for companies to save money on day-to-day operations? What are common expenses that people can cut out or better manage?

Yeah, one of the things that comes up across the board—and we usually have an intern do the analysis across our whole portfolio of clients, around 300 or so—is looking at monthly subscriptions. This is a budgeting tool not just for early-stage startups, but for any (16:17) The costs of Amazon and being an Amazon Seller are actually really high, 20 to 30% in some cases. So, I think that being able to analyze and track what we're actually getting from Amazon, what our fees at Shopify are, what our distribution fees are—whether we're using UPS, FedEx, or our own warehouses—what's the cost of getting that product out, and really tracking it is crucial. Inventory-based companies need to track their numbers meticulously. All companies should, but these inventory-based companies really need to track all expenses and their return policy. Companies like Costco and Amazon will take returns forever. We've seen other retailers do a holdback to compensate for these returns. For example, you might sell a million dollars of business, but they'll hold back $400,000 until they see what the return rate looks like. So, you're barely covering your costs and might need to raise prices to sell to those types of retailers.

(16:48) Totally. You're preaching to the choir. We dealt with Best Buy and similar companies, and it’s like, "Wait, what do you mean you're not going to give us our money for X amount of months?" It affects the cash flow of the company. I think that's a huge reason startups fail even though they're successful. If you have 90-day payment terms with Best Buy, for example, you deliver the product on June 1st, and they don't pay you until September 1st. But you would have had to order that inventory months before, taking three or four months. Now you're six months out from paying for inventory to getting paid by the customer. These cycles of cash flow create a six-month problem of a cash crunch. How are you going to continue to pay your marketing team, engineering team, and update your security while waiting six months to get paid?

(17:20) Makes a lot of sense. When should a SaaS company consider bringing in a bookkeeper like yourself? It's probably not a good idea to wait too long, right?

(17:42) Yeah, a lot of our customers, especially repeat customers, start from day one. We have a sole proprietor's package that's only $350 a month. If the business is just starting, you want someone to run things by, make sure you get your EIN in, and track down appropriate elections and solid payroll. Some people start on day one, budgeting the cost as part of their business. If you've got a lot to do and you're an engineer, focused on building your product, that's a great time to bring someone in. For those who aren't thinking that far ahead, the next step is when you realize you're spending too much time figuring out how to do things like registering for payroll in Texas or dealing with state unemployment insurance numbers. This could take an entrepreneur hours or days to figure out, but someone on my team has that number memorized.

(18:11) Once your business starts getting more complex, or you get investors, it's really appropriate to bring on a professional team. If you take even $100,000 of investor money, you should have someone ensuring you're compliant and tracking everything correctly. We provide reassurance to investors that you're a good steward of their money. We also provide financial reports, so you can give investors constant transparency and updates about the success of your business. When you get your monthly financial statement, your bookkeeping manager can show how your spending in marketing has turned into additional sales. You can then tell your investors at a cocktail party, "Our sales are up because of our recent marketing campaign." Those little nuggets keep investors engaged and excited about their investment, increasing the chances of further success and investment.

(18:40) It's a great point. Don't be penny wise and pound foolish. (21:28) Do it right from the beginning. So with that said, what kind of fundraising tips would you offer for companies? I know you've played on both sides, working a lot with investors and entrepreneurs. What have you seen works for entrepreneurs? You mentioned great communication, staying engaged with the investor, and having that proper communication and transparency as well. Anything else you'd like to touch on?

(21:57) Yeah, I'd say right now the investor environment is extremely difficult. There are lots of startups that should be fundraising but are struggling to do it. Early-stage startups are getting investor meetings, but the investors are sitting on the sidelines. It's always hard to fundraise, and right now is particularly hard, especially in markets like Seattle. I don't know if you saw it in GeekWire, but Seattle has now dropped to the 20th-best startup market in the country, and Tech Stars has pulled fully out of Seattle. This is largely because the investor environment in Seattle is so cold right now, and I think we're seeing that across the country, other than in some very small pockets.

(22:25) One of the things we talk about in fundraising, and I know we did this strategy together with your company, Andy, is building authentic relationships with investors before asking for money. One of the ways we do that is the one-two step. We first go to the investors and say, "Hey, I've got a new startup. We're thinking about fundraising. We're not fundraising yet, but we understand you're a prolific investor and you might be interested in the space. Could you give us some advice as we're preparing our fundraising round?" When you ask for advice, you get money; when you ask for money, you get advice.

(22:57) As step one, do that coffee meeting. In cities like Denver, Seattle, Chicago, and DC, people are pretty open to that first meeting. A lot of the VCs I know in these markets, especially Chicago and Seattle, will do a coffee with an entrepreneur to talk about their business. Understanding what the investor is looking for is crucial. All investors are looking for a great team, product-market fit, and traction. Really understanding what that investor's criteria for traction is important. Focus on what they need to see to be interested in your business and promote it to their friends.

(23:24) During that first meeting, your goal is to understand what boxes you need to check before the investor would be interested in investing. Also, since they're an investor, they probably invest with others. Ask them, "Who else should I talk to in the Seattle area, Denver area, San Francisco area? Who else could give me more advice or might be interested in helping us along?" Through this process, especially in Seattle, you can meet with every investor within about six months. You'll get introductions and can attend networking events. I host a great networking event in Seattle and Washington DC called Cigars and Startups, where we invite investors and entrepreneurs to share a cigar and some whiskey, building those relationships before asking for money.

(25:00) The first step is to understand investors' product-market fit and your company as an investment opportunity. Take the product-market fit process seriously. In the second step, hopefully, through that six-month process, you'll meet investors interested in your progress. For example, one investor might say they'd invest if you signed a large enterprise client. After achieving that, you can go back to investors and show your progress, saying, "Hey, we signed HSBC Bank as a customer. Can we count on your support to join us as well?"

(25:29) You want to soft circle more money than you're trying to raise. If you're trying to raise $500,000, soft circle $750,000 because someone might drop out at the last minute. Understanding what investors are looking for, executing on that plan, and then coming back to show them your progress is crucial. Investors will feel vested in your success if they see their advice helped you. If an investor can help you make a connection or milestone, they'll be more excited to invest alongside you.

(27:18) A lot of people treat investors like a piece of meat, going straight into sales mode. But it's a relationship-based thing. Investors have money to deploy into any company, so what makes them want to buy into your journey and mission? How does that connect with their values and something they want to be part of? They can put their money in safer investments like CDs. We had a client right before COVID who had lined up about half a million dollars in a fundraising round. When COVID happened, Boeing stock dropped, and the investors pulled out and parked their money in Boeing stock, seeing it as a safer investment.

(28:07) With interest rates where they are, there's a basic return on safe conservative stocks and bonds, making startup investing seem riskier. It's more important than ever to find investors who are value-adds, believe in the mission, and are excited about the product. Right now, there are other safe and attractive alternatives. How do you see technology playing into financial management? You touched on AI earlier. It's a productivity tool, not a complete replacement. Used effectively, AI can be powerful. I know Zccounting is a very tech-forward accounting firm. Can you describe how you leverage existing tech tools today?

(29:02) I'm leveraging AI on a personal side to the nth degree because AI is strong and powerful, especially as a decision engine. When thinking about accounting and new technologies, you want the next solution to be ten times better than the previous one. For example, asking about the best pasta recipe might be better with AI's specific cooking instructions. But in accounting, AI is only about 10-20% better on the basic bookkeeping side because bookkeeping, once you know the rules, is fairly routine and rule-based. We're using AI to review monthly financial statements and give feedback to clients. Sometimes, AI states the obvious, so you have to coax it for better answers. Overall, AI is a great tool, but you still need the team and people to pay attention.

(31:06) The technology we're most interested in, where AI will be helpful, is communication. For example, when filing tax returns, we often don't have the right information from clients. They might upload everything except their home mortgage statement. The tax preparer has to stop the process, go back to the client, and wait for the missing information. Using AI to review prior-year tax returns, compare them with current information, and reach out to the client proactively would be valuable. This isn't about replacing people with AI but getting information quickly and improving communication and follow-up.

(32:34) So it's more of a productivity tool, helping you do your job better and saving time. Exactly, it's like my AI cheerleader. Don't get too close to AI, though. Just kidding. If Scarlett Johansson's voice was on Chat GPT, I might switch from Alexa. I joke that Alexa is my girlfriend because I talk to her so much for calculations and spelling. If it was Scarlett Johansson's voice, I'd switch to Chat GPT overnight. It might be like her movie coming to life.

(33:03) What's next for Zccounting, and why should people choose Zccounting services today? One thing that sets us apart from other bookkeepers is the reliability and consistency of our service. There are cheaper solutions, but if your bookkeeper goes on vacation or quits, you've lost everything. Because we have so many clients, we've developed processes and procedures to ensure accuracy and timeliness. We touch all clients at least once a week, even those on our smallest package at $350 a month. This package is great for real estate agents, independent contractors, Uber Eats drivers, and Airbnb hosts. If you have a bookkeeper who only files your taxes quarterly or annually, you're missing out on tax savings and risking penalties.

(35:04) Working with a firm like ours professionalizes your books. We learned from experience when our first employee went on maternity leave during COVID. We couldn't rely on one person to have all the information. Today, all our bookkeeping teams are paired with a manager and an associate, ensuring continuity even if someone is on vacation or leaves the company. This ensures that our processes and procedures are consistent and reliable. Our focus on thoughtful processes and communication sets us apart. We emphasize constant communication with clients, so they're always informed and can make timely tax strategies.

(37:00) Regarding what's next for Zccounting, we aim to spread our love for entrepreneurship and support small business owners nationwide. I'm a mentor at P33 in Chicago, an organization helping entrepreneurs of color and women entrepreneurs. In Austin, we've connected with Capital Factory and Tech Stars. In Washington DC, we have a great partnership with Nex Law, providing Delaware franchise tax support. Our goal is to be the go-to bookkeeping firm across the country, offering solid processes and reasonable prices.

(38:33) We're currently building out our Washington DC office and supporting our employees and customers on the East Coast. After DC, we might expand to Phoenix or New York City. DC is a great central location, close to South Carolina, Georgia, Atlanta, and New York, with easy access to Delaware for franchise tax matters. We've felt warmly welcomed in DC and will continue to invest in cross-country growth, building what we've established in Seattle in multiple markets.

(39:30) Our mission is to prevent startup failure with proper accounting and bookkeeping. Sometimes I feel negative, but we see entrepreneurs not doing their books or working with someone who isn't providing the necessary support. We want to stop this failure and do what's right for the entrepreneur. It's not a sexy topic, but it's essential for a real business. Andrew, thank you for coming on today. I highly recommend checking out Zccounting. They're a great partner of ours in NachoNachoo's B2B SaaS Marketplace. You can find them at Zccounting.com.