Bench accounting was acquired. It’s a wild reminder to revisit your cash flow forecast

I promise you this story will not contribute to gossip. The AI-powered accounting service Bench briefly shut down and was then suddenly acquired. You can read the story in TechCrunch and from the founding CEO and from further anonymous reporting. What interests me isn’t so much that Bench was in accounting, but that it was a venture-funded startup which failed in an area that’s painfully common—cash flow management. 

This is a discipline we know a lot about. Pilot offers bookkeeping, accounting, tax, CFO advisory, and capital management to thousands of startups who nearly all face this challenge. And because the shutdown was such a sudden shock, lots of news outlets picked it up, so we have a surprisingly clear view into what happened.

The lesson, simply: No matter what you sell, you had better manage your cash position, burn rate, and runway, or you can be forced into awful positions.

Let’s review Bench’s story from the start of the presumed crisis, and explore why it didn’t appear to raise its pricing even as warning signs appeared.

It ended with a debt call

On Friday December 27, 2024 Bench’s leadership emailed the entire company to say it was their last day. The company couldn’t keep up its debt payments, says The Information, and presumably one of those creditors was asking to be repaid. The company had raised over $100 million USD (Bench was a Canadian company) over a period of 13 years from a variety of high-profile investors. And presumably, thereafter, additional venture debt. But that entire journey came down to a single day and one “insufficient funds” notification.

Let us consider the role debt played here. We’ve seen many early-stage startups take on debt over the last two years as venture equity has grown more difficult to raise. But founders often don’t realize debt can be more dangerous than equity because with debt, the creditor gains the right to repossess your assets (called a lien). If a startup faces cash flow issues, the lender may have the right to foreclose on the business and force it to sell.

Which is precisely what we’ve seen here. 

No two types of capital are the same and founders must think hard about the downsides of each strategy—especially as if they run into go-to-market issues. Of course, hindsight is 20/20, and here we are commentating. But would a down round with equity dilution have been preferable to debt for Bench? Probably. The company might have cut spend more aggressively until it found its market fit or came closer to profitability. (Given what we know right now.)

In this case, it seems that the result of the capital strategy—taking on debt—led to a total destruction of the equity. Whereas a down round may have preserved something for shareholders. 

To return to our story, Bench’s leadership almost certainly knew this was coming. But they were likely distracted by turnover.

Just one month prior, they’d replaced their CEO, which was likely a symptom and not a cause. This was their third CEO in three years and the board was behind it. The outgoing person, Jean-Philippe, was the company’s CFO before becoming CEO, so whatever financial issues the company faced, he knew them well. During his tenure, cracks started to show and Bench shed a significant number of employees according TechCrunch—from a reported 700 down to just 400.

This is why the latest CEO, Adam, said his job was to prepare the company for a sale, reports TechCrunch.

To avert disaster, manage your burn rate

Your burn rate is of course the rate at which you are losing money. The higher your burn rate climbs, the shorter your runway. If you’re worried about your runway, you’ll want to cut your burn rate which you can address from two angles: 

• Increase cash held—sell more, raise prices, find funding
• Decrease expenditures—pay out less, pay it slower, and delay capital repayments

(Read about all this in greater detail in our beginner’s guide to cash flow.)

Increasing cash sounds obvious but it is not as easy as it sounds. Presumably Bench was doing all it could to sell more and find funding, as well as cut back on real estate, marketing, products, and of course payroll. But Bench appears to have focused much more aggressively on the second route—reducing expenditures. 

The original founding CEO claims to have been pushed out in 2021 by board members who wanted to take the company in “a different direction.” He claims they wanted a faster path to profitability. (Anonymous reporting supports this.) In Bench’s case, this meant they invested more in automating the process of bookkeeping, without a proper plan to change. Either business model could work. But they seem to have gotten stuck in a messy transition.

Here, TechCrunch is worth quoting in full: 

One reason for the company’s struggles was a push to embrace AI and other automation tools in recent years, according to some staffers. 

It turns out that it’s simpler to automate accounting tasks, like categorizing expenses, in theory than in practice, former staff told TechCrunch. One former employee claimed the only way Bench could scale was AI, but its execution was flawed and the tools it built didn’t work properly. Overreliance on these tools, sometimes at the expense of human bookkeepers, caused delays, with books passed around different teams instead of staying with one staffer. 

As an accounting services firm ourselves, I’ll caution that this is not the inevitable outcome of automation. Plenty of startups successfully manage through this. But for whatever reason in Bench’s case it didn’t appear to work. So in December 2022, they initiated “multiple rounds of layoffs” according to employees who spoke to TechCrunch. 

Pictured is Bench’s employee count according to LinkedIn, which of course is just an estimate, but seems to match this story. 

Why didn’t Bench just raise its prices? Looking at the Wayback Machine, which stores images of most companies’ websites, you can see that their pricing did not change over the first three years of this crisis—though at one point they added a crossed-out “$299” in front of the $249. Then, in Late 2023, they finally increased the price of their premium tier while discounting their entry tier. 

What can we make of the fact that Bench didn’t aggressively raise its prices? That’s really a function of the buyers. Multiple sources seem to confirm they already reached the upper band of what very small businesses were willing to pay for bare-bones cash-basis only bookkeeping and tax services. If you read the profusion of commentary online (I have read far too much), some accountants claim that many of Bench’s customers were so small, and their finances so straightforward, they probably could have gotten by with a spreadsheet. If DIY was a credible alternative, it was likely difficult to charge more.

Bench’s cash flow issues, product issues, and reduced headcount came to an impasse last year. The AI automation service was not scaling as intended, so the bookkeeping required more humans, not less. One Bench customer posted online when they shut saying his books hadn’t been done in five months, and each time, he had to beg.

Bench needed all those bookkeepers it was losing, so it couldn’t break the downward cycle. Suddenly, one day it was over.

If you must wind-down, there is a playbook

One imagines the new as-of-November CEO Jean-Philippe tried everything possible including trying to raise more cash from existing investors and debt from venture banks. But for whatever reason, they would not issue more. The institutions most in the know about the company’s finances did not think there was a path to recovery.

And I will say, this happens. Most startups do not succeed and venture capital firms are happy if one in ten startups is a meteoric success. But it is devastating to be in that unhappy situation like the Bench team, faced with no good choices.

If your burn rate is high and can’t come down, there is no path to more cash, and you cannot right the ship, what do you do? 

A similar thing recently happened to a startup that was truly famous in its time—the design software InVision. You should read the former CEO’s response to questions on Twitter, they are candid and illuminating. InVision built an organization that wasn’t quite adaptable enough, and too dependent upon other software partners. When the market changed suddenly, their top competitor with an all-in-one product slingshotted past them and there was no catching up.

That’s why in January of 2024 InVision’s then management team decided they were going to conduct an orderly shutdown. They announced to all customers that in one year, they would cease operations. “Please find an alternative,” they wrote. This is an absolutely unheard-of length of notice, and suggests the company was probably breaking even, and could offer this notice while still returning some cash back to shareholders. 

InVision’s approach is the ideal, if your hand isn’t forced. Startups fail and thankfully, are pretty much destigmatized and even celebrated. If that is your situation, you should be thinking about: 

• Preserving your reputation with your investors
• Granting severance to employees and helping them in their search
• Doing right by your customers who trusted you

But if your hand is forced, still, do not give up—as Bench’s situation illustrates.

It wasn’t until Bench officially terminated everyone and put out the notice and unplugged their website that they got acquisition offers. “It was only after we shut down that all the PR, including from you guys, basically made the world aware that we were for sale, and we had some great interest after that,” Adam told TechCrunch.

Under new ownership, Bench was able to quickly reach all employees and relaunch all its services including its website. It now lives on as a sub-brand of Employer.com. This is truly one of those “longest minute” moments in startup life. You had better be ready for them. Yes, they take a toll. But that’s something founders sign up for.

“I haven’t slept in 72 hours,” Schlesinger admitted at the end of his call with TechCrunch.

‍

Have more insights or corrections? We’d love to hear them at hithere@pilot.com.