Finance and Operations

In this section, we are going to discuss startup finance and operations and basics behind financial difficulties. It is very important to learn how to properly manage operations durng the early incubation stage prior to entering the growth phase. Also, entering that important growth stage is easier for any company if you have multiple products introduced in different phases than having only a single product which you are tiring to commercialize. Another important operational question for startups is when they should hire a CFO. This page aims to answer these questions in detail.

When You Should Hire a CFO

Before we start you should know that not every company needs a financial chief, but it is ideal to have one if it is possible. You can start thinking about this when you see the dynamics of your business. If you notice that you have a hard time keeping an eye on your and things are developing too quickly, you will need to hire a CFO who is able of functioning as your business partner and who will allow you to step away from all those books so you will have more time to devote to some other aspects of your business. Generally, as startup businesses grow, most entrepreneurs hire either a CFO of their own or look for help from outside accounting companies.

However, accountant companies only deal with payroll and taxes, but you need someone to constantly have an eye on your finances. If your company starts to grow, you know that financial reporting requirements will become more challenging and complex, so bringing in someone to keep an eye over your finances is probably a good idea. As soon as you notice that managing business’s finance is challenging get out there and find yourself a full-time finance controller with experience. The extra salary may hurt at first, but having one around will pay dividends over time.

Diligence Basics for Investing

You are already aware of the fact that investing in a startup business is quite risky, just like investing your money and time in anything else. However, there are some tips you should keep in mind when it comes to the startup business due diligence. You know that your business requires a certain investor support, so you have to be prepared for that due diligence process and prepare all the required documentation that has to be well organized. If a startup lacks knowledge of what to expect of the due diligence, it may turn potential investors away, so make sure that you are well prepared.

In order to make the due diligence process as smooth as possible, you have to prepare basic company documents and history, securities matters, insiders, all documentation related to indebtedness, contracts and commitments, litigation and claims, tangible and intangible property lists etc. Keep in mind that three of four startup business will fail over time. While in theory this 75% chance of failure may seem daunting, the reality is that there are ways to increase your chances of being in that 25% that succeeds.

You should know when to harvest your investment while considering your partners. The best thing to do is invest the money into something you believe in and already know very well. Investing your time and money into startup business is way more successful if you learn what are the current runways are and have a clear idea of the burn rate you will be facing. You should make sure to understand the complexity of the current capitalization table, then focus on your team and ask yourself does everyone included have that clear role as well as mutual respect. Then you will research on any outside advisers or board members and find out if there is a real customer who is willing to give a testimony about your service or product. There are many things you have to keep in mind, but doing so, you are greatly improving your chances of success.

Financial Statements and Budgeting

You have been working on your brilliant idea for some time, and now is the time to get investments from banks and lenders?! To get this, you will need to present your financial statements. You should know that your financial statement will be carefully examined by the lender or potential investor, so you should follow basic tips that will improve your chances of selling your business plan. Any financial statement should include a startup budget, stratup costs, a pro from including a balance sheet, profit, and loss statements. Once this is done, you will start working on your startup budget and startup costs worksheet and you have to do a lot of estimating.

However, the trick is to underestimate income and overtime expenses. You will also have to provide other statements like the break-even analysis and the cash flow, but you may provide these later as well. The next important thing is to create a business startup budget that is like a projected cash flow statement but with more guesswork. Your potential lender will want to know your budget, so make sure you have that business startup budget statement even if you don’t need any funds at the moment. You will also provide startup costs worksheet that answers the important question of what you need the money for. It also shows all purchases you will need in order to open those golden doors to successful business.