Building Financial Infrastructure for Your Startup
Building a financial infrastructure for your company may not be high on your list. When you’re just starting out, most startups don’t give much thought to the financial aspects of growing their business. That’s a mistake.
The thing to keep in mind is that financial infrastructure isn’t just about tracking expenses and paying bills. It’s selecting the right tools and putting into place the systems and processes that will help you to manage all of your finance needs—but also position you to take your company to the next level.
While each company is different and has unique financial needs, there are some things that all companies need to consider when creating their financial infrastructure. Perhaps most importantly, you need to take into account your current situation. There are big differences in your financial strategies depending on whether you are pre- or post-funding.
Pre-Funding Financial Strategy
Prior to funding, your company is in a state of serious development. You want to keep things as simple and low-cost as possible as you set up your basics. There are a few key items for you to focus on at this time:
- You’ll need a simple accrual-based accounting structure with reporting processes. This will act as the foundation for your financial infrastructure.
- Open a business banking account. You need to set up a workable system for accounts payable that includes segregation of duties and manual checks. Check out my earlier post on banking solutions for help choosing the right bank.
- Separate personal and business expenses. An obvious step, but one that many entrepreneurs skip over.
- Keep records of receipts and invoices (either physical copies or in the cloud). While the IRS regulation is $50, it’s easier just to keep them all.
- Be aware of tax obligations. Future tax trouble can be avoided, if you take the right steps now.
- Collect payments. In the early days, you’ll want to use Stripe, Paypal, or checks. But as your company matures, you’ll want to look into payment gateways and authorize.net, Intuit, and Bank as well as SAS for recurring payments, like Recurly.
- If you have payroll to manage, again, you’ll want to keep it simple. For now, you should just be looking for a payroll provider like Paychex, ADP, Intuit. And be mindful of payroll taxes.
- Keep on top of your stock records from the outset. Proper stock administration management will save you from future confusion down the road.
And, most importantly of all: do not do your own accounting. I repeat: Step away from Quickbooks…quick! Hiring a professional accountant is a worthwhile investment that will save you time, infinite hassle, and, down the road, money.
Post-Funding Financial Strategy
Post-funding, your financial strategy will shift and deepen. You’ll still need to focus on the basics from your pre-funding days, but you’ll face new financial concerns as well. Now that you have investors, they will want to see clean financials. Starting clean saves you from the herculean task of future clean-up, and allows for accurate tax reporting. This isn’t just a nice-to-have: it’s also necessary for 409A valuation. Post-funding you’ll want to:
- Hire a professional to help you with your operational and project accounting as well as longer-term financial strategies around forecasting and to help you to establish the processes for tracking costs. In other words, outsourcing your bookkeeping is not enough; you need a senior finance professional to help with strategy.
- Maintain compliance by reporting financial statements in accordance with generally accepted accounting principals (GAAP)
- Cash-flow forecasting and cash management. Controlling your cash and keeping a low burn rate is essential.
- Figure out larger scale payroll solution. Now that you have funding, it’s a practical choice to seek out a full-service HR solution such as Algentis, TriNet although this will also require greater awareness of your HR strategy.
Contact Early Growth Financial Services for help building your financial infrastructure.
Everything that you do from day one sets the foundation for future growth. The steps you take to create your financial infrastructure will reflect on your company’s financial standing and shape its growth. Most importantly—it gives you a better understanding of your business: your current situation, key milestones, and funding objectives.
How is your company creating your financial infrastructure? Let us know in comments below, or contact Early Growth Financial Services for help.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, a financial services firm providing a complete suite of financial and accounting services to companies at every stage of the development process. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.