Prompt, accurate, and thorough financial reporting is crucial for newly funded startups for several reasons:
- Good financial reporting helps your startup track its progress and make informed decisions about future strategies.
- It provides transparency to your investors on how their capital is being deployed and how the business is performing.
- It provides good visibility to your key performance metrics (including cash runway) and how they are trending over time, facilitating productive conversations and timely decision making.
After your startup raises its first institutional funding round, your investors will want to receive regular updates on your company’s progress. Here are four best practices you should put in place right away so you can satisfy your investors financial reporting needs:
1. Close of Books
Target closing your books within ten business days of the end of each month. This provides the most timely snapshot of your financial position, enabling effective decision-making and prompt detection and rectification of discrepancies. It also ensures you can have financial reporting available in time for board meetings and any time sensitive due diligence requirements as you seek to close on future rounds of financing.
2. Chart of Accounts
Your startup’s chart of accounts is a list of all financial accounts in the company’s ledger, usually categorized into assets, liabilities, equity, revenue, and expenses. Implement a chart of accounts that enables your desired level of financial reporting and business analytics. Think ahead to how you wish to set targets and plans for your business and ensure you will be able to easily measure whether you have achieved those targets.
3. Standard Financial Package
Develop a standard financial package to share with your Board of Directors at each meeting, ideally reflecting performance vs. plan and monthly trendlines. This financial package should include:
- Financial reports, including your income statement, balance sheet, and cash flow
- Other industry-specific KPIs. For example, a SaaS company would include metrics such as ARR, churn, and LTV/CAC.
4. Periodic Financial Reports
Investors will periodically request financial reports. Provide a year-to-date monthly income statement, balance sheet, and cash flow reports. You should be able to easily download these from your accounting system.
How well you manage your first round of investment and communicate with your investors goes a long way toward determining if you’ll receive a second round. Burkland provides investor relations and board support as part of our strategic finance services for venture-funded startups. We can help you prepare the best financial package for your investors, respond to financial information requests, and even present to your investors on behalf of your startup. Contact us for more information.