Scott Schimberg CPA CMA Partner - Armanino, LLP
As cryptocurrencies gain traction toward mainstream adoption and acceptance, companies in the crypto ecosystem must balance an influx of revenue and fast growth with the challenges of building a financial infrastructure capable of supporting their changing needs.
Whether they’re a cryptocurrency exchange, a company funded through an initial coin offering (ICO), a platform or technology provider―or any combination of those categories―firms need processes and tools to help them address technological, marketplace and regulatory uncertainty amid rapidly changing token and company valuations.
Without proven monetization strategies, crypto companies are developing their technology and commercialization plans dynamically while the marketplace and regulatory climate evolve. Like other high-growth startups, most are understandably more concerned with proving their concept, attracting investors and rushing to gain market acceptance than with investing in back-office financial tools. The return on investment of engineering talent, for instance, may be more readily apparent than the ROI of financial systems.
But neglecting financial infrastructure can lead to management and compliance challenges as a firm grows and plans for its near- and long-term future. Companies with more effective financial tools and controls outperform competitors that are unable to overcome their technical debt, develop the appropriate financial and compliance processes, or scale efficiently.
A key to establishing a strong financial infrastructure is adopting a cloud-based ERP platform that provides clarity about your operations while enhancing your compliance and governance framework. Core ERP financial tools improve company performance by providing deeper insights into financial and operational results, and centralizing information to enable faster and more accurate decision making.
Key Questions to Answer
With widespread uncertainty underscoring the crypto ecosystem, building core financial tools improves your ability to meet change head-on, scale effectively and plan for future growth. As market and regulatory pressures change the landscape on a near-daily basis, you have to be able to answer some fundamental questions, including:
- Are you operating profitably?
- How much revenue do you have? And how and when do you recognize it?
- Which financial and non-financial metrics are critical for understanding your results?
- Can you account for equity accurately?
- Can you report financial and performance data to investors and regulators?
- Is the data feeding your financial systems timely and accurate?
- Are you managing your cash efficiently?
- Do you have an effective separation of duties?
- Do you have an effective internal controls framework to reduce the risk of fraud and material misstatement of your financial results?
This challenge is complicated by the fact that the accounting rules for cryptocurrencies are vague at best. There aren’t defined standards for cryptocurrency valuation or accounting, or for paying employees in tokens. There are no clear SEC or IRS guidelines, other than the well-understood concept that fraud is illegal.
Beyond that, there's still very little direction on how crypto companies should define revenue for financial reporting or taxation purposes, report it or recognize it. Without this information, it’s difficult at best to communicate results with employees or investors.
Building a Platform for Growth
To answer these key questions (and address the underlying challenges they represent), companies must develop a financial and compliance infrastructure that meets their current needs while accommodating future growth and increased regulation.
Starting from the basics of developing an idea and setting up a corporate entity, to issuing equity and managing cash, to reporting results to investors and regulators, a firm’s reporting requirements will become more complex as it scales. Cloud-based ERP tools can support a company at each stage of its growth by improving its ability to understand its financial performance and take advantage of emerging opportunities.
For growing companies, cloud ERP solutions offer a number of advantages over costly, complex on-premise implementations, beginning with increased flexibility. Instead of assuming all of a company’s transactions and processes will be housed within the ERP―or forcing companies to adapt processes to meet the ERP’s requirements―today’s cloud-based ERP platforms allow greater flexibility by integrating with other financial or operational tools your company is using.
This best-of-breed cloud architecture allows you to invest in a platform offering the most effective performance for your company today, while preserving your ability to expand and upgrade as your company grows and its compliance needs evolve.
These tools also offer user interfaces and terminology that are easier to understand than their on-premise predecessors. This reduces the amount of time needed for training and implementation―allowing for a stronger focus on your company’s core mission and performance.
Beyond technology, a strong financial infrastructure also means having the right people. Companies that aren’t ready to add in-house accounting staff can consider outsourcing some financial reporting, management and accounting support.
Investing in cloud-based ERP and enlisting support from financial management and reporting professionals are foundational steps that can improve your company’s operating efficiency, financialperformanceand credibility with investors, regulators and customers. This strong foundation will help you successfully weather the inevitable changes ahead.
Learn more about cloud solutions and how they can impact cryptocurrency companies with Armanino.
Scott graduated from San Jose State University in 1991. He became a Certified Management Accountant in 1995 and obtained his CPA certificate in 2002. Scott is a member of the Institute of Management Accountants (IMA). He has held various positions with the Amador Valley Chapter, including President. Scott has a mixture of industry experience and has held positions as Assistant Controller, Controller and VP of Finance. He also has more than 13 years of consulting experience, where he has focused on implementing ERP systems.