Break out of Your Mom-And-Pop Shell With Polished Financials No one likes dealing with financial stuff but the president of financial service company Consero Global Bill Klein provides us the skinny on the importance of investing in your startup's financial data.
By Bill Klein
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When launching a startup, one of the most daunting tasks is keeping up with your financials. Yet, it is one of the most important duties for a startup, especially those in the high-growth stage.
If you're on track to be more than a mom-and-pop shop, it's essential to have a high-quality, accountable financial platform to effectively monitor the health of an organization, fuel business decisions and open your company up to growth capital. And I'm not just talking about asking your awesome bookkeeper to take on extra hours. This is serious. If your goal is to grow really fast, you'll need to bring in the big guns.
Here are four ways to ensure your startup's finance solution doesn't slow you down:
1. Turn to the pros.
While a full-time CFO may not be required today, high-growth companies can benefit immensely from hiring a financial consultant or asking an engaged board member with strong finance background to chip in. This outside help is also imperative for newly launched companies, as it enables them to rapidly identify and respond to red flags and ensure they're on the right track.
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Once you have someone on your radar, you need to suss out their capabilities. They should proactively ensure that all underlying financial details accurately support and explain the top-level numbers. Because without numbers to prove your traction, investors won't pour capital into a startup nor will companies want to acquire your company.
Having a strong financial leader in place to keep a constant, clear and clean picture of an organization's finances will help set you up for maximizing the value of a business.
2. Embrace technology.
Small accounting packages are great for getting your feet wet in startup land, but companies can outgrow them quickly. While, fresh but scaling startups tend to drag their feet until they see clear evidence of issues, prolonging upgrading may cause unnecessary and costly headaches like missed billing opportunities, inventory write-offs, efficiency gaps in operations or even fraud.
Looking for a fix once a problem emerges could take months to evaluate and implement, leading to more lost revenue. Don't wait to invest in a financial technology solution, because the costs will outweigh the short-term savings.
There are many scalable cloud-based financial solutions available to growing companies at price points that won't break the bank, like Intacct and Netsuite.
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3. Think like an investor.
While on a rapid growth trajectory, companies relish the opportunity to show investors why their business is the best. Yet, the investment community is often bombarded with so many different financial formats, they have to rework information in order to make any sense.
If the intent is to lock in growth capital, make sure you're on the same page as investors. For instance, switching from cash-based to accrual-based accounting may be your first step. Transitioning from a method that records revenue and expenses when cash is exchanged to one where revenues and expenses are tracked as they incur, provides more in-depth information to investors, like future revenue based on credit.
4. Focus on the future.
Many small companies only produce financial statements that allow them to look back at what happened in the past. As with driving a car, looking backward when going forward is not an effective or safe way to see what is coming.
Accurate forecast information -- showing where the organization is headed from a cash and operational perspective -- is critical for executives to make decisions and to gauge performance. If you can't clearly see where you will be financially in 30 to 90 days, you will lack the ability to address potential problems.
What other tips do you have for keeping your financial information in check? Let us know in the comments below.
