October 10, 2013 | 4-minute read (713 words)
In the very early-stages, your startup finance strategy may be pretty straightforward. You need to establish your accounting platform and systems, including accounts receivable and accounts payable. You are going to want to identify the best payroll and banking solution for your company. And you definitely want to give some thought to tax considerations.
After you’ve received your first round of funding, that’s when your startup finance strategy needs to deepen.
This is a necessity because your investors will expect accurate reporting, but it’s also an important step for startups to make to gain a deeper understanding of their own business.
Here’s how to build out your finance function, post-funding:
Hire a professional. Pre-funding, you may have been managing your finances yourself. Post-funding, it’s time to hire a professional to help you to manage your day-to-day finances as well as provide strategic financial insight. You probably won’t need a full-time hire. At this point. It makes more sense to outsource to get the exact services and level of financial support you need, while keeping your cost structure low. You’ll need someone to handle both your transactional accounting as well as higher level financial strategy.
Build your financial infrastructure. By setting up your accounting platform and system pre-funding, you’ve already built a strong financial foundation. Now you just need to take the next step. Financial infrastructure isn’t just about tracking your accounts payable and receivable and reporting expenses. A huge piece of financial infrastructure is financial forecasting. Performing bottom-up and top-down projections will give you insight into potential revenue and market-share. These projections enable you to set your milestones and identify what you need to achieve these milestones. Read my previous article Bottom-Up vs Top-Down Financial Forecasts for more information about financial projections.
Manage cash-flow. Once you have some money (or more money), you need to closely monitor your cash flow and maintain a low burn rate. Presumably you had already set some milestones prior to funding. Now you need to work to these milestones, setting your revenue goals and budget so that the funds you’ve received will take your company to the next level. Just because you have some money in the bank doesn’t mean that you should blow through it. While you may not have to pull those bootstraps quite so tight, funding doesn’t give you carte blanche to make large, unnecessary expenditures. Before spending money, make sure that the ROI will be there.
Clarify your funding objectives. Now that you’ve been funded, it’s never too soon to think about your next funding round. Establish a new set of milestones that you’ll want to work towards and project out how much you’ll need to achieve these milestones. You’ve done this work before, so you should be a pro at it now!
Become GAAP-compliant. GAAP refers to Generally Accepted Accounting Principals. Your investors are going to want to see what you are doing with their money. You can satisfy investors and ensure compliance by reporting financial statements in accordance with GAAP principals. Essentially GAAP compliance ensures that your financial reports are an accurate portrayal of your financial position.
Contact Early Growth Financial Services for GAAP-compliant financial reports.
Create clean financials. Clean financials go hand-in-hand with GAAP-compliant financial reports. Accurate financial reporting isn’t just for your investors. It’s necessary for 409A valuation and for taxes as well.
Managing your finances post-funding is certainly more complex than pre-funding, but, with the right systems in place and the right financial support, you should be able to scale efficiently.
How has your financial strategy evolved since you received your first round of funding? Tell us about it in
comments below or contact Early Growth Financial Services for financial consulting.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, an outsourced financial services firm that provides early-stage companies with accounting, finance, tax, valuation, and corporate governance services and support. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.