As a fractional CFO for startups, I’m often asked about my general advice for founders. This article shares some of my best tactical and strategic advice gleaned from two decades of working with startups in different stages and sectors.
Tactical Advice for Startups
Six bits of tactical wisdom I’ve learned as a fractional CFO for startups
1. Invest in “Right Size” Finance Systems
In the early stages of scaling your startup, it’s important to strike a balance between finance systems that are robust enough to meet your needs and lightweight enough to be easy and cost-effective. Finance systems that are too heavy or too light can bog down a startup and lead to disorganization, inefficiencies, and wasted money.
Focus on building a solid finance toolkit with best-in-class systems that interconnect, automate, and offer robust approval workflows. Particularly important early on is an accounting system like Quickbooks Online, a payment system like bill.com, and, not too long following those two, an expense reporting and payment system like Airbase.
2. Implement Rigorous Financial Controls Early
Strong financial controls are essential for any size company, and they come into particular focus at startups.
Startups often grow organically at first, and financial controls tend to be neglected as team members focus on product development, marketing, sales, and strategy. On top of that, there is often a high degree of trust between management team members and a “we’re all friends here” attitude. This collegial culture is one of the great things about working at a startup, but it can also lead to financial security holes and, unfortunately, fraud.
See Burkland’s Financial Controls Matrix for a guide to the most important controls to implement as you scale.
3. Work with a Bank That Specializes in Startups
Big-name national banks and local credit unions may be fine for your personal finances, but they aren’t set up to serve the needs of your startup. Open a business account with a bank that specializes in startups. Banks like Silicon Valley Bank, First Republic Bank, and Rho offer special services tailored to the needs of startups and often result in lower costs. Startup-focused banks also facilitate networking between clients and the startup community and may be able to connect you to funding opportunities in the future.
4. Review Financial Statements Regularly
The three most important financial statements for most businesses are the Profit & Loss (P&L) Statement, Balance Sheet, and Cash Flow Statement. Depending on your startup’s model, there may be other important statements or reports. Make sure you can easily access your important financial statements and review the most important numbers weekly, particularly the change in cash. Keeping current with these numbers will help you avoid unpleasant cashflow surprises and stay ready for any tax audits, funding rounds, and similar events where a third party will scrutinize your financials.
5. Stay Current with Tax Filings & Payments
Few startup founders would describe taxes as “fun”, but they’re a cost of doing business, and neglecting them can hurt a startup in numerous ways. Tax penalties from late filings or payments can drain a startup’s precious cash reserves. I’ve also seen promising funding rounds fall apart due to tax liabilities and common tax mistakes.
Recent trends to hire more remote workers and independent contractors have added even more complexity to an already complex tax code. Stay current with your taxes and know when it’s time to invest in professional tax services and people operations for your startup.
Strategic Advice for Startups
Next are seven critical strategic lessons I’ve learned as a fractional CFO for startups
1. Develop a Solid & Robust Financial Model
Your startup’s financial model is a crucial component of your overall business model and shows how you’ll generate cash, make a profit, grow, and remain sustainable. The financial model is vital for any business and has particular relevance for startups where it helps inform pricing, hiring, fundraising, pivoting, and other strategic decisions.
Don’t neglect to build out and improve your financial model alongside your product roadmap, marketing strategy, revenue, and other strategic plans as you grow your startup.
2. Focus on Your Culture & Values
It might surprise you to hear a fractional CFO for startups emphasizing culture and values, but in my experience culture and values are about more than just creating a “nice place to work”. Taking time early on to define your company’s core values and culture gives you a sharpened focus that helps with everything from planning your strategic direction, to hiring, fundraising, and decision making. It’s not an exaggeration to say that defining clear values and culture early on has a direct positive impact on your startup’s bottom line.
3. Validate Your Go-to-Market Early
It’s essential to validate your market and your product-market fit early, before investing a lot of time and resources going down the wrong path. This means knowing the market size and trends, customer needs, competitors, and suppliers.
Online market research, customer interviews, and limited test pilots are three efficient and effective ways you can validate your go-to-market strategy early. This article from Harvard Business School provides some helpful tactical tips for market validation.
4. Keep a Good Handle on Your Cash
Few things are worse than seeing a promising startup go under simply because the company ran out of cash. As a startup, you need to constantly monitor your runway and potential impacts. My general advice is to secure 18-24 months of runway when raising capital, and then look to raise the next round of funds when there is 6-12 months of cash left.
5. Target the Right VCs for Your Startup
I’m still surprised by how many startups take a blanket approach when soliciting venture capital firms and contact any firm that will talk to them. Different VC firms focus on supporting startups in different stages and sectors, and you want to work with a firm that’s an ideal fit for your startup. Consider your VCs as strategic partners and not just sources of capital.
When you get opportunities to pitch to investors, make sure you have a winning pitch deck that marries great metrics with great storytelling.
6. Surround Yourself with a Winning Team & Mentors
The quality of your founding team is one of your main success drivers early on and something VCs look at closely. This is the time to build your rock star bench, paying particular attention to the team members you bring on to head up Finance, Operations, Product, Technology, Marketing, and Sales. Look for team members who 1) excel in their individual fields, 2) have played key roles at successful startups in the past, and 3) align closely with your company’s culture and values.
7. Bring on a Fractional CFO Early
A fractional CFO for startups can help you see around corners and manage your company’s strategic finance functions, so your time can stay focused on product development, revenue growth, and building a solid team. A proven CFO also gives board members, investors, and other outside stakeholders extra confidence in you and the company. Examine these three areas to determine if your startup is ready to hire a fractional CFO and contact Burkland for more details.