8 Rules of Startup Finance (Investors will look for #4)

8 Rules of Startup Finance (Investors will look for #4)
In the early stages of your company, it can be tempting for you as a founder to want to handle all the financial aspects of your business. From payroll to accounting and everything in between, you want to have control and know what's going on with your growing business at all times. In reality, though, the time you spend on these tasks is taking away from the time and resources you spend on other important aspects of growing your business. With this is mind, it's a good idea to set up an internal finance and accounting team from the very beginning

1. Like A Good Suit, Your Solution Should Be Tailored For Your Business

Of course, you don't want just any finance and accounting team for your business. One of the biggest mistakes founders tend to make is looking for a "white whale" that can handle all of their finance and/or accounting needs in a general, universal way with incredibly low rates. The truth is that you'll need to find professionals who are tailored to your company's specific needs, and this can be time consuming. You'll essentially be building a team—a team that will grow and scale with your business.

2. Start By Solving Your Current And Short-term Financial Needs

Think about it this way. You don't want to hire a full-time senior accountant right off-the-bat to handle all your finance and accounting needs because more than likely, a senior accountant won't be interested in handling smaller and menial accounting tasks for very long without getting bored. On the same token, hiring a junior accountant fresh out of school or a basic bookkeeper for all these tasks may not be ideal because they may not have the experience needed to handle more complex tasks. As an example, consider a company that has a lot of manual billing, accounts payable, and accounts receivable work, but a relatively Iight amount of accounting to complete each month to close its books.  In this case, it may make more sense to hire a full-time junior and part-time senior accountant to suit your company's diverse needs.

3. It’s Far More Expensive To Fix Than Get It Right The First Time

Figuring out your finance/accounting needs and tailoring your team as you go will be more cost-effective, and it's always going to be cheaper and easier to get your accounting right the first time, rather than having to go back and fix issues later on. This is especially true when you have investors (or potential investors) that you don't want to look foolish in front of.

4.  Delegation Still Requires Oversight

As a founder, stepping away from micromanaging every tiny aspect of your company's finances and accounting is a must if you want to focus on growth. At the same time, it's still important to ensure the work being doing is correct as your vendor will not know your business as well as you, particularly as it grows and changes.  Are new expenses being categorized accurately, and do the financial statements accurately reflect the business?

5.  Always Know Your Financial KPIs

It’s also your fiduciary responsibility to know your business and where it stands from a financial standpoint. For example, you should be able to walk into a meeting and discuss some basic details about your accounting and finance, such as:
  • revenue
  • monthly burn
  • cash in the bank (and when you’ll run out)
Knowing your company's overall financial position at any given time will help you make the right decisions for your company's future and make it easier for you to talk to investors, partners, and other key players with confidence.  And unlike school, it’s perfectly acceptable to carry and use an up-to-date cheat sheet.

6.  Congrats- You’re Big Enough to Leverage a Chief Financial Officer

For many businesses (and especially for startups), working with a Chief Financial Officer (CFO) makes a lot of sense. But what exactly is the role of a CFO and how can they help a business scale? It can be useful to look at a football analogy. Think of the CFO as the coach of the team. These professionals are responsible for getting to know the business, determining its needs from a financial standpoint, building and recruiting a roster of players for each different role, and calling the plays to find success.  Just like running a team, there’s no one way to do it, but if you don’t tailor it to maximize talent and put folks in the right place to succeed, it’s going to make success even more challenging to find.   For example, let's say your business is about to go through an audit for the first time. A CFO will know which auditing firms to approach and get bids to you in a timely manner. They’ll ensure your company is prepared in advance, and will manage the process throughout, helping speed up the audit and increase the likelihood of a favorable outcome.  As another example, If your company is about to go global, a CFO will know to bring in an international tax expert and make sure your company's growth across borders is handled correctly.

7.  You’re Growing, And Need To Scale Financial Operations

One of the most important aspects of building your internal financial team is making sure your team can scale as needed. For many startups, this may mean bringing in part-time resources early on and then scaling to full time and other positions as needed. Keep in mind that as your business grows, its needs will change as well. For example, if your business begins selling its products out-of-state instead of just locally, you may suddenly find yourself needing to worry about sales and use tax for the first time. This can be quite complicated, and you may need to bring in more professionals to help with this and make sure you're operating in compliance to avoid future problems.

8.  Eye The Exit and Tax Plan Early

Once your business grows to the point that you're thinking about an exit, you're going to need to have someone in your corner thinking about personal and business tax liabilities. The main thing to remember here is that you shouldn't wait until the last minute to think about these kinds of things. It’s usually too late by then to take any meaningful action, and ignoring this can potentially cost founders, investors, and shareholder millions of dollars. As a founder, it can be difficult to step away from the accounting and finance aspects of your company. And while you should never completely step back, you should have a finance team on your side that can handle the most important aspects of your company's accounting and finance operations so you can focus on other aspects of your company's growth.  By having a finance team early on and scaling it as needed, you can avoid unpleasant surprises in the future and always know where your business stands  

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