As busy as startup leaders are, it’s critical for them to set aside time for financial operations and capital strategy.
Many startups are founded by entrepreneurs with fantastic product ideas, often experts in engineering, business management or product development. They have identified a legitimate problem, have built a valuable solution and are product- and market-focused — as they should be! As the company grows, however, back-office matters become increasingly important and demanding of their attention.
Although finance is always my personal first choice, I know that many founders defer this work or simply don’t know where to start. Outsourcing can be a great option, but at a strategic level it is expensive and still can’t replace the inherent value of a business leader with intimate knowledge of the company.
At a busy and lean company, the time that founders and executives spend on finance and capital will need to be well planned and focused. Let’s review the top areas to focus on for maximum efficiency.
Finance and Capital Playbooks
Strengthen your back-office operations with York IE Fuel's finance and capital playbooks.
Basic Financial Operations
First, you’ve got to nail the basics: bookkeeping, tax preparation and compliance.
Bookkeeping is paying the bills, processing payroll, invoicing your customers, processing cash transactions and keeping accurate records. These tasks can either be outsourced or done in house, and they shouldn’t require much executive time or review. A reliable resource in this role will require little day-to-day oversight and can be cost efficient. Of course, in a small company with limited resources, segregation of duties could be a concern. So we recommend a monthly review of all bookkeepers’ work through reconciliations.
Tax preparation is often outsourced, and it’s typically efficient to do so. Compliance efforts will vary depending on your requirements, which may come from debt agreements, board reporting or other third parties.
Bookings and Forecasting
Reliable financial forecasting is critical for strategic planning and execution. At a high level, the leadership team should have an understanding of annual recurring revenue targets for at least the next 12 months and a good record of active bookings each month.
This will unlock next-level planning opportunities regarding headcount, facilities, platform costs, marketing and product research and development (R&D). When you set achievable bookings targets, the interim hiring plan can be formed, and spending on general and administrative expenses, R&D and cost of revenue can be projected with the capital that the additional revenue will afford you.
Capital Run Rate
A high-growth business deploys resources efficiently and continuously invests in itself, often through incremental headcount. This leads to a known scarcity of capital, which is both intentional and risky. In that environment, the leadership team needs to know how much runway it has and when to seek additional resources.
Managing your capital run rate will allow your organization to fundraise when the time is right through a deliberate and unrushed process — and to be confident that the financial road in front of you won’t disappear out of the blue.
Ratio and Trend Analysis
Managing expenses to the penny is time consuming. Following a fixed budget is inflexible and can lead to missed opportunities. For those reasons, we don’t recommend managing expenses that way. Ratio analysis is key for a startup with little time to dedicate to financial management.
Trends over time give founders an understanding of the overall health of their company and future trajectory. But you must have accurate data in order to create a reliable ratio and financial trend analysis. By nailing the basics and getting a good handle on customer bookings, you’ll be able to calculate key SaaS metrics and trends over time.
As leaders of a high-growth company, there is no shortage of tasks to accomplish — both tactical and strategic. Balance and intention are incredibly important if you want to nail the strategic plan while also keeping the day-to-day operations running.