Entrepreneur Academy

So as we talk about the importance of finance, I want to stress that it's something that can be put in place from day one. This is really important to increasing your odds of success. Where I see companies fail, one of the main reasons is they don't put enough time or energy into their back office. Accounting, finance, even hr. These things are very important to your investors, to your board, and really just so that you don't run out of money so that you don't come up against anything that's unexpected. So what I like to suggest when we start out is the back office. What steps can we take here? One, putting in place the proper accounting tools, but we're not talking about anything extravagant. QuickBooks online bill.com. Expensify, even depending on your business model, you may throw in something like harvest to track hours. We see a lot of companies use Carta.

That's part of your finance understanding your cap table. These are all great tools that you can use and they're really inexpensive and they're over the counter and they're very robust. They will take you a long way and they will help you avoid a lot of the mistakes that we see companies make. Quite honestly, when a startup takes other people's money, the rules change. There is an expectation of reporting. There is an expectation of being able to track how your money is being spent. Just in general, this back office hygiene needs to step up a level and it's a part of your diligence. Your investors and your board will demand it. So accounting tools one area, don't put that off. That's something that you can put in place. Have a nice process and the correct tools to help you manage your back office accounting. The second area is the financial model.

Now, financial model, when done properly, really serves two purposes. The first one is fundraising. A fundraising model is what's going to attract investors. It's what's going to demonstrate to an investor what your long-term vision is. How big of an opportunity do you see here? How are you proposing to spend their money? What are your cash needs? What are the milestones that you're going to execute against? So a little bit longer term view, three to five years, how do you get to the market and how big of a up into the right curve are we looking at? The second purpose of the model, which is I think especially once you raise money, but to me it's much more important in terms of operations. It's the cash forecast. Very granular. For startups, it's often month to month because you're measuring your runway in months, 12 months, 18 months, 24 months.

So really understanding where you're spending the money and how you're tracking against those forecasts is crucial. And it doesn't matter how well you're executing if you run out of money. When I see companies fail, it's for a number of reasons. It could be technology, it could be product market fit, it could be price point. But at the end of the day, what happens is they run out of money. The more that you're able to understand your runway and manage your cash, the longer you have to work yourself out of any of these things because you will need to change, you will need to pivot. And being able to understand what the options are and how much time you have to make these changes is key. So a good model will show you what aspects you can adjust. One of the things that's very important to report on is budget versus actual.

You're going to have a forecast for a particular month and then you're going to have actual results. You need to understand what the difference is. More importantly, why and some changes are pretty minor. Like an example I like to use is travel. Perhaps you spent more on airfare in one month than you projected. That's not something that you really need to change your forecast about. It's just it was a one month increase in spend. Then that's how you explain it. But other changes need to be taken into account on what we call a ruling forecast. Let's say that you had projected to hire a head of sales in a particular month and it didn't happen, and now you realize that's going to probably take two months longer. On one hand, you've saved a little bit of money because you're not paying that high salary for two months.

But on the other hand, chances are it's going to impact your revenue since you're head of sales. Maybe you have to delay when you're going to bring on the rest of your sales team. Maybe it delays how quickly you ramp your revenue or when you can even get to market in general. So really paying attention to your model and adjusting is needed is key. As a startup, you cannot be executing against a forecast or a budget that's no longer relevant. You have to be able to understand what has changed and how to react to those changes. So make those changes when needed. What do your board and your investors expect? Very simple transparency and regular communication. This is an area where we really deal a lot with startups. In terms of almost coaching. You have to communicate to your board one of my most valuable bits of input I've received over the 20 years I've been doing this.

Very simple from one of the VCs I worked with. He told me that nothing new should ever be discussed in a board meeting. It should all be communicated beforehand. Board meetings are about deciding how to take action. When you bring those people together, your board members, they are your champions. They are oftentimes also investors. They want you to succeed. You need to rely on them. You need to ask them for input and sharing with them your financial update on a regular basis and having a clear and transparent set of numbers is very important. So what do you need to show them? You need to show them your cash position. You need to constantly update them on your runway. How long is this money going to last? You need to let them know what you did in terms of performing against your budget versus actual, and then talk to them about changes that you need to make and there will be changes.

I've been doing this a long time. I have yet to see a company that is a startup that is ultimately successful, that looks exactly like what their first investor deck look like. There will be pivots and there will be need to adjust to changing market, changing technology. And your board is one of the best, most valuable resources to help you understand and make those decisions. They're a big asset. Communicate. So in summary, finance, it's important from day one. It encompasses accounting and it encompasses your financial model. Financial forward looking. I like to think of it as over the horizon kind of view. Put in place the right tools. Don't ignore your day-to-Day accounting. I'll see companies all the time come to me and they have yet to even open up their company bank account. They're still using their personal bank account or their co-mingling with their personal credit cards.

Get everything set up. The tools aren't expensive. The tools are very robust. Number two, financial model. Get a model in place. Communicate to your board about what that model suggesting. You need to understand your runway. You need to understand how much money you have to be able to execute, and even if it means it's a runway that gets you to your next fundraise, which is usually the case companies we work with. Still being able to show the progress that you're making along that cash investment. So understanding your model and what adjustments you can make is very important. So would love to talk more about this. If you have any questions, if there's anything we can do to help, please feel free to contact me. Again, my name is Ryan Keating and you can find my contact information through the Eisner Amper website.

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