Money Matters – The Role Of Finance In A Start-Up

What is the essential goal of a start-up? In a nutshell it is to make money – to be profitable. In many crucial ways a strong Finance leader has an essential role to play in making that happen.

1. Engender A “Profits” Mindset: So many founders we come across, especially in the software services space are from a technical background and they tend to share a strange reticence about making money! Perhaps this is a by-product of being so mentally invested in their technical idea that in their mind their role becomes to prove the viability of their idea rather than to profit from it. The role of finance is to bring that objective front and center and to create the discipline that enshrines that ideal at the core of everything they do.

2. Count The Dollars (& Cents): First generation entrepreneurs who come into the entrepreneurial life from a background of having worked for large companies with deep pockets often need a vigilant Finance function to drive home a consciousness of the expenses they incur. It should be the role of Finance to keep careful track of every $ being spent and more importantly to look at every proposed expense or investment through the prism of the potential ROI.

3. Outstanding in Collecting: Assuming your start-up has started gaining traction in the market and acquired the first few customers you need to be ensure that the faith your customers have placed in you actually pays off. With everything on the founders’ plate Finance can play a game-changing role in diligently billing and collecting for your services. Managing “outstandings” is an absolutely critical piece of the start-up puzzle.

4. Keep The Cash Flowing: An extension of the point of managing “outstandings” is focusing on cash flow. Finance’s role should be to look practically at “Realized Revenue” and to balance the money coming in with that going out. Not much point in having a great idea and in being profitable if you don’t have money to pay salaries at the end of the month!

5. Budgeting For A Brighter Tomorrow: Today’s cash is tomorrow’s investment – given the point we have made previously about being careful in investing only where the ROI allows it follows that making a Financial Plan or a Budget for the days ahead is important. This is a function that Finance is best placed to take up. The role of Budgeting is so key that it probably merits a post on its own – a post that we will surely put together.

6. Getting Investment Ready: Every founder looks forward to the day his or her start-up is ready to go public or is acquired by a well-known company. For that to happen or even if the start-up goes out seeking funding it will be absolutely essential for the financial reporting of the company to be complete. The key financial statements including Balance Sheets and Profit & Loss statements have to reflect the financial reality of the start-up and to include all of the statutory compliances needed as per the laws of the land.

That apart it is sometimes said that Finance should create scalable financial systems and processes but our own, somewhat contrarian, view is that the importance of systems in the early start-up days is somewhat overstated. As long the basic hygiene is maintained there will always be room (& time) to build shiny new systems in the days to come. What do you think of this list? Is there something else that Finance should focus on in the early days of the making of the start-up?

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