It is said certain things are better when written down – letters, grocery lists, important thoughts… and we’d add POLICIES. We can sum this blog up in three words – Policies are critical. To get everyone reading this to agree would indeed be a utopian world but let us explain why we see things this way. Often while dealing with startups we face the challenge of convincing them to adopt certain policies and procedures. They’re usually reluctant, not understanding the value behind this small yet significant step. But why is this step so important? Policies are implemented early with the intention of enabling anticipated growth in the future. Postponing policies to a later stage does create problems downstream because there might be a resistance of moving away from what is “easier.”
From the startup’s perspective this simple step might be an overkill for small tasks like enforcing expense reimbursement policies or documenting approval for a check run. While these are basic processes the associated policiesare extremely important for properly managing cash, recording for future due diligence and preparing for financial audits. Applications like Expensify and Bill.com have helped implement these polices and make it much easier.
Another instance of a policy that is often overlooked is the IRS compliance of properly collecting W9’s and W8’s from Vendors. In theory, it’s not difficult to request a W9 or W8 from a vendor once engaged, but this easily gets overlooked when dealing with all other aspects of trying to grow your business. This tends to create an issue in January each year when filing 1099s becomes more of a task than it should be. Forms 1099 are quite straightforward – you report the vendor info and tax ID along with the amounts paid during the prior year for anyone eligible. But the issue of incomplete documentation sets you against the clock in tracking down all the required information. If too pressured you can end up filing an incomplete set of 1099s since there were vendors you couldn’t obtain details from in time or you’re stuck with certain vendors who are unresponsive. No matter how experienced you are with the 1099s, this tends to be a recurring event unless a simple process or policy is implemented.
The solution? Enforce a set policy and establish its importance. Be a nag if need be because not only is it beneficial to the concerned startup but also makes their organizational processes much easier. Down the line there will be that “Aha moment” when 1099’s, Due Diligence, or a financial audit will show why we nagged them about these pesky policies and show the value to which our foresight contributed. Save the day before it goes downhill, because prevention is always better than cure!