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Financial management for startups


We produce and communicate several hundred important pieces of financial information with many company owners with whom we interact daily.


We think it's crucial for founders and other stakeholders to grasp the information being presented and discussed and to ask the relevant questions. This week's programme will mostly address two subjects:


Is it crucial to get the monthly financing process down pat right away?


When examining my monthly management information pack with my accountant, what should I pay close attention to?

1 - A reliable financial system

You must have given your financial procedures some thought. You might be doing fine right now and have other important things eating up your attention.

2 - A solid financial procedure

You must have given your financial procedures some thought. You might be doing OK right now and concentrating on other things.


However, it's crucial to make sure you are aware of the problems and factors that must be taken into account at the appropriate time.


To avoid having to go back and reexamine a crucial decision, it is important to establish a solid financial process early on. Additionally, every action you take—whether it's documenting or analyzing—additionally contributes to functioning in a stable financial environment that is conducive to expansion.


Priorities for taking care of the basics include:

Setup

  • Company Registration - Carefully chosen specifics and first implementation (e.g. shareholding, directors, address). Keep every letter you get!

  • Tax registrations, including PAYE for setting up a payroll system when you need to recruit staff and VAT for filing your quarterly VAT returns as necessary.

  • Banking setup to enable you to begin trading, including traditional and challenger banks.

  • Trading; bookkeeping software like Xero or other financial information systems to record your daily financial operations; and trading.

  • The financial process, including the input of banks into the financial information system, the approval and submission of supplier bills, etc

  • Payroll - Making sure you've met your auto-enrolment pension responsibilities while also paying your team's salaries.

  • Monthly financial controls - establishing the financial controls procedures required to get there, as well as month-end management data for informed decision making.

  • Budgeting and forecasting: planning for the future of the business based on informed assumptions made today and long-term strategic goals.

  • Compliance: annual accounts, Corporation Tax returns, payroll filings, pension filings, and VAT returns. Check the filing and reporting deadlines with Companies House and HMRC.

  • Understanding your cap table (capitalization table), shareholder dilution, and fundraising considerations from a financial and legal standpoint, as well as being cognizant of timing and the sequence of events.

  • Sales - Properly billing clients - VAT issues such client location or your business model acting as principal/agent, and understanding your income in the transaction flow inside your business model

  • Employee benefits - Make sure they are being accurately reported.

  • Accurate reporting of inventory and cost of goods sold data.

Please get in touch if you want to discuss any of the above, and we'll be happy to help you work out if now is the time to address them or if you can wait until you have driven through a few more of your startup's milestones.


3 - Monthly management information

A snapshot of your startup's financial performance [Profit/Loss - income and costs] and your financial position [Balance Sheet - assets, liabilities, and equity] is provided in the monthly management information pack at the conclusion of each month.


These reports provide you with insight into the factors affecting your company month after month. Based on the information from the current and previous months, they also enable you to re-project your budget and other important factors.


You'll feel more at ease understanding your business and discussing it with others if you comprehend this information and ask the proper questions. We're here to help, so don't be overwhelmed by it all.


Below are the key areas:

Balance Sheet (statement of financial position)

1. Assets and liabilities - Become familiar with your assets and liabilities. Ask yourself why certain balances exist and what effect the other side of these items will have. Consider whether it affects your personal and monetary results (P&L) and if so, why. Deferred revenue, accruals, and prepaid items are a few important areas where month-end adjustments have been made. Discuss these with your accountant to learn why they exist and what effect they will have both now and in the future.

2. Equity - Recognize the figures for current year earnings and retained earnings (reserves), as well as the capital represented by nominal share capital and share premium. The shares issued and the valuation you have led to this outcome.

Profit and loss (statement of financial performance)

3. Cost of Goods Sold (COGS) reconciliation and margins Does this seem correct? Request an explanation of the figures presented here, including how they were calculated. Are they based on subscription data and then modified for upcoming licences that your customers haven't yet used? How do the margins appear? Does the cost of sales correspond to the sales that have been recorded, and why was the cost of sales reported as it has been determined?

4. Review and keep track of all expenditures - What are your costs and what constitutes the primary sources of your company's cost base? Does this appear to be correct, and how will it evolve moving forward? How do fixed and variable costs compare

5. How have customer acquisition expenses (CAC) affected the company this month? Can you compare the cost of acquiring a new client to the lifetime value of that customer to your firm by using these charges in your LifeTime Value (LTV) / CAC metric calculations?

6. Team costs - Examine the team and contractor expenses and contrast them with the results and effects the team is producing. Do you have enough resources where they're needed for your company to prosper?


Tactical areas (cash & commercial considerations)

Budget: How are you doing in comparison to your financial objectives or forecast?


7. Runway/cash burn - How long does your startup have left based on the cash situation, present operating strategy, and plans for both business operations and any fundraising considerations?


How many more months will it take me to reach my next milestones, and how will I get there?


8. Cash flow - It's crucial to manage cash. What factors have affected the cash flow this month? How will this affect the upcoming months' cash planning?


9. Drivers - Dig deeper into the data to identify the strategic factors that underlie the high-level financial indicators you are given.


10. Business thermometer - In business words, compare the financials you are evaluating to your operational and commercial month and mark any issues or problems you have. Do the numbers you are looking at support the claims that there may have been a significant marketing campaign, a substantial number of new customers signing up, or five new employees?


11. Compliance framework and timetable for filing and payments - Are you aware of all of our compliance responsibilities? Do we currently have a plan in place for the upcoming corporate filings and tax obligations?


12. This month's commercial concerns Has anything occurred or is there going to be anything that will impact how the firm trades or operates that needs to be discussed? Conditions could include new customers signing contracts for a different revenue stream, contractors providing services abroad, and so forth.


Finishing it off

You will get more financial knowledge when you conduct these discussions with your accounting team and go over the financial data as a group.


Soon, you'll begin to consider the financial repercussions when making day-to-day decisions. It's wonderful to be here.


We sincerely hope that you have enjoyed reading this article and have learned a few things that will be useful to you when you talk with your accounting staff about the data and procedures pertaining to your financial management.

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