Note: this article is aimed at early-stage startups and small businesses. This might not be the best advice for bigger companies (100+ employees)!

For many early-stage startups, finance can feel like a necessarily evil: there are rules about how you track your money (”accounting”), and if you don’t follow them then bad things might happen.

This is partially true — a big chunk of finance is admin work that doesn’t help you get closer to your goals.

But certain parts of finance can help towards your goals, and with the right tools, you can get those benefits while spending minimal time on admin.

Legacy finance tools (e.g. spreadsheets) add a lot of friction to doing the value-add stuff, so many companies ended up skipping it, doing it poorly, or doing it inefficiently.

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In this article, we’ll summarise the “old guard” of finance tools, outline our philosophy on modern finance tools, and share specific finance tool recommendations for early-stage companies.

Feel free to skip to the end for the conclusion!

The legacy finance stack

The legacy finance stack is characterised by disparate point solutions glued together by spreadsheets, fuelled by monthly CSV exports.

Accounting: the dominant small-business accounting systems for the last 20 years have been QuickBooks Online (QBO) and Xero. They do the job and are much better than what came before, but are pretty cumbersome to get your head around for the first time.

Banking: Most traditional banks offer small business banking, and for startups, Silicon Valley Bank had been the de-facto option until March 2023. These options were fine as places to store money, but janky to interact with — you had to do a lot of stuff via mail/in-person, and their web platforms/mobile apps were clunky.

Payments: While Stripe is still a great option today, it’s been around long enough (in “startup years”) to also be the established, legacy player. It’s a great experience for developers and very good at what it does.

Reporting, Planning, Budgeting: This has historically been the land of spreadsheets. Every company is slightly different in the way it reports, plans, and budgets, so the flexibility of spreadsheets and the lack of sufficiently flexible alternatives has allowed them to dominate.

Accounts Payable (AP): This is a fancy term for dealing with invoices that your company has to pay and keep track of (e.g. rent, software vendors, etc). This often includes employee expenses. At most small businesses, this is done manually and tracked in spreadsheets, but there are also dedicated AP software systems, and dedicated employee expense management systems.

Accounts Receivable (AR): This is a fancy term for sending invoices and collecting money from your customers. Most small businesses use the built-in invoicing from their accounting/payments systems.

Payroll: Payroll is notoriously fragmented because each country has its own way of doing things. Gusto has been the leader for small businesses in the US.

Principles of the modern finance stack

To solve the problems of the legacy finance stack and let you do value-add finance efficiently while minimising admin, there are 3 principles you should stick to when looking at finance tools:

1. Modern finance tools should be interconnected: tools should plug into each other so you don’t have to do manual export/import
2. Modern finance tools should be multi-purpose: tools shouldn’t be narrow point solutions for individual tasks, they should cover end-to-end workflows
3. Modern finance tools should be self-serve: you shouldn’t have to spend weeks/months talking to salespeople, pay 10s of thousands per year, and be locked into annual contracts

Principle #1: Interconnected

In 2024, you shouldn’t be manually copy/pasting values from one tool into another, or exporting/importing CSVs every single month — your finance tools should be able to talk directly to each other.

Your accounting system is the “source of truth” for your financial numbers, so the most important thing is for the rest of your stack to be able to work with your accounting system. Some tools will need to write data to the accounting system (e.g. payments processors, expense management) while others will need to read data from the accounting system (e.g. reporting/planning/budgeting tools).

Thankfully, most tools that are in business today do integrate well into the rest of the stack, with one notable exception: spreadsheets.

The spreadsheet trap

Spreadsheets have many advantages, but connectivity is not one of them.

Getting data out of your source systems and into spreadsheets is painful and manual, and is the biggest reason why companies end up not benefitting from the value-add stuff above, or getting the benefits but having to spend a tonne of time in the process.

Principle #2: Multi-purpose

A lot of finance processes are closely related to one another. You’ll be making your life a lot more difficult if you have multiple different tools that provide point solutions for different parts of a workflow, instead of a single tool that can handle the entire workflow end-to-end.

Budgeting, reporting, and planning should happen in a single tool

Reporting, planning, and budgeting are 3 sides of the same triangle — you need a deep understanding of what happened in the past (reporting) in order to decide what to do in the future (planning), and once you’ve done that, you can lock in your plan (budgeting), and track how you’re performing against that plan/budget each month (reporting again).

While these tasks are intimately connected, they each have their own nuances:

• Reporting gets a lot more complex if you have multiple entities in different currencies, so some companies try to adopt dedicated reporting tools for consolidation (e.g. Fathom). Unfortunately, these tools can only do “financial reporting” — they can’t do MRR reporting for SaaS businesses, or report on operational metrics.
• Planning requires modelling your business (”financial modelling”). This needs flexibility, so most companies end up using spreadsheets for it. These spreadsheets are disconnected from the reporting tool.
• Budgeting starts in spreadsheets, where the budget is built. It's then sometimes uploaded into the accounting system or reporting tool for automated “budget vs actuals” reports. These becomes disconnected from the spreadsheet, where the plan/budget is updated over time.

In this way, companies can end up with 2–3 disconnected tools for different parts of a workflow that are inherently connected.

Similarly, HRIS and Payroll are intimately linked and should be consolidated under a single tool, as well as Expense Management, Corporate Cards, and Accounts Payable.

Principle #3: Self-serve adoption

Agility and flexibility is important for early-stage companies and self-serve products tend you give you that, along with a lot of other benefits:

1. No surprises — you can actually try the product before you use it!
2. Cheaper + lower commitment — you won’t be locked into an expensive annual contract
3. Time-efficient — you won’t spend weeks/months talking to salespeople, and then more weeks/months implementing a heavy system
4. Self-reliant — if you need to change/customise things, you won’t need the vendor to do it for you (which can take time)
5. Better day-to-day experience — self-serve products necessarily need better UX, so will usually be more pleasant to use

Now obviously, there is an important place in the world for enterprise software, salespeople, annual contracts, and all the rest of it. But until you actually need a heavy enterprise-level solution, it’s generally not in your interests to get one. (We’ve learned this the hard way once or twice!)

The main downside of self-serve software is that you’re less likely to get dedicated, hands-on support. So it’s important to understand the support channels that will be available to you (e.g. live chat, email) and the quality of resources that you’ll have access to (e.g. documentation, tutorials).

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Our modern finance stack recommendation

Banking: Mercury

Mercury is easily the best banking option for US-based startups and small businesses. Signing up is simple, the online platform and mobile apps are great, and they have a great treasury product that works seamlessly together with their bank account.

Payments + AR: Stripe

Stripe is the most popular payments processor for startups and small businesses for good reason — it’s simple to set up, super flexible, and can scale with you as you grow.

The only downside is that Stripe doesn’t help much with tax compliance and has only basic AR functionality.

Runner-up: Paddle

If you operate in lots of countries (which creates tax liabilities) then it would be worth considering Paddle. Paddle charges a bit more, but handles tax, revenue recovery, and a bunch of other things out-of-the-box, which Stripe can't do yet.

Accounting: Puzzle (US) + QuickBooks (non-US)

2 decades after QuickBooks and Xero came on the scene, we've finally gotten a modern accounting system in Puzzle. It's much quicker to setup, much nicer to use, and with native integrations into Stripe and other tools, it gives you real-time reports. Puzzle only supports US companies today, so if you're outside the US, then we recommend QuickBooks.

Runner-up: Xero

I’ll be honest — there’s not much difference between QuickBooks and Xero at the end of the day. QuickBooks is more popular in the US, while Xero seems to be more popular in the UK. You can’t go wrong with either.

Reporting + Planning + Budgeting + SaaS metrics: Causal

Causal solves the legacy finance stack’s “spreadsheet problem”. The product is as flexible as a spreadsheet, but connects directly into the rest of your finance stack to automate data updates, and has a lot of other nice functionality that save time and reduce errors.

It also handles specific workflows that would otherwise require standalone tools, like multi-currency consolidation and sophisticated MRR reporting that can’t be done in Stripe.

There are a bunch of tools that try to do all this for bigger companies (e.g. Mosaic, Abacum), but these tend to be less flexible and are more like enterprise software (expensive annual contracts, heavy implementation, etc).

Causal has a free trial and a simple month-to-month subscription, and can scale with you as you grow to 100s of employees and beyond.

AP + Expense Management: Ramp

Since Brex stopped serving the SMB segment, Ramp has become the obvious choice for expense management (including corporate cards) and AP (bill payment, etc).

They automate pretty much all the admin, and they make it super easy to do the few manual actions that you need to do (e.g. approving expenses directly from an email).

Runner-up: Mercury

Mercury has recently moved into the expense management space, with corporate cards and some AP functionality. If you’re just starting out then it’s worth trying Mercury for this stuff since you’ll already be using them for banking, but if you’re an established company then it might be safer to stick with Ramp.

HRIS + Payroll: Gusto or Deel

Gusto

If your whole team is in the US, then we recommend Gusto — it’s easy to get started, does the job well, and integrates well into other tools.

Deel

Deel have done a great job of building an international payroll system with built-in HRIS. They also offer EOR and contractor management services. If you have employees in different countries, then it could reduce the headache of managing separate payroll and HR processes in each country.

The main downside is that you won’t be able to buy Deel self-serve — payroll is complex, and you should make sure to do your diligence with their sales team to confirm that they can properly support the countries you need.

What about Rippling?

Like Deel, Rippling offers payroll and HRIS in a single tool. They also have products for other back-office tasks, like IT and expense management, and they’ve done a great job in building their brand and marketing to startups.

While there’s a lot to like about Rippling, they don’t integrate into many other tools and are very opaque about how they select tools to partner with and give API access to. With this approach, buyers are taking a big vendor lock-in risk when using Rippling.

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It’s never been easier to build a company than today, in terms of the tools and systems that are available to simplify and automate work. While it certainly took time, it’s exciting to finally see the finance stack “level up” in the same way that the product, engineering, and data stacks have done over the last decade.

We hope that our Modern Finance Stack can help you approach finance tools in a new way, and ultimately save you time and effort that you can better spend on building your business.