Here are the first five things to do after getting funded.

I work with a lot of startups and funding is a big part of their strategic plans. However, it’s not just about getting funded, it’s also how best to spend those precious funds that is, well, fundamental to their success.

For the sake of brevity I won’t focus on how to get funded, as that’s a given (and a subject for another post), and I  won’t focus on how specifically to use those funds, e.g., for product development, sales, or marketing, etc.; rather I’ll talk at a high level about how to create processes and systems that will help you track your financial progress, liabilities, keep your investors informed, and how to do all of that in full compliance of GAAP and other regulatory guidelines.

Note: I know that this may not be exciting as your cool new product or closing that first big deal, but trust me, getting set up correctly the first time will make your life so much easier – and allow you to focus on that which you’re born to do, namely, build and sell awesome products!

Top Five Financial First To Do’s

Let’s get right to the point. Here’s my list of the first five things to do after you get funded:

Hire an accountant 

Now that you have some real money you also now have the associated obligations of managing cash flow, financials, etc.; so you need to upgrade your processes and systems. Your one-off spreadsheets and financial models have done their job to get you funding, but now it’s time to focus on day-to-day finance and accounting. It's time to hire an accountant. You probably won’t need a full-time accountant at first so it’s usually best to outsource that role to an individual or a consulting firm; both have their advantages.

As your cash inflows increase via sales revenues or more funding, e.g., past the $5 million mark, you will want to seriously consider a CFO Advisor (also known as an interim CFO). This CFO will act on your behalf to answer more advanced finance and accounting questions and will be a good asset for overall strategic advice, communicating financial information with the investors and the board, equity questions, and more.

Implement an accounting system

One of my former bosses once rather bluntly told me, “Companies that run on spreadsheets go out of business.” And he would know, he founded many very successful companies (and a couple of unsuccessful ones…)

That’s good advice: Don’t rely on a spreadsheet to keep track of your business. Bite the bullet and get a real accounting system. Early-stage startups should look at QuickBooks Online  (my personal favorite), or Xero, or others. As you grow, say when you’ve hit $20 million per year or so in cash inflows (via additional investments or sales revenues), you’ll want to consider a full-on back-office system such as NetSuite and a sales-and-use-tax integration software such as Avalara or TaxJar.

I recommend that all of your software be cloud-based, at least at first. You don’t need to add “manage the data center” to your already long list of things to do each day.

Create a chart of accounts

A key to your financial success will be the chart of accounts (COA). Basically this is a system of your accounting records that aligns with your financial structure and offers the level of detail required in your financial statements. It’s a list of accounts indexed by the classifications and sub-classifications of your financial transactions. For example, a banner advertisement might be classified in Expenses as Marketing Expense 6800 and subclassified as Advertising 6850.

There are five essential categories you’ll want to consider for your startup chart of accounts: assets, liabilities, owner’s equity, revenue, and expenses. I’ll be writing more about these and how to set these up in a future post.

Add software tools

In addition to the accounting system I recommend that you purchase a few basic software tools to further help manage your funds and your expanding business. At a minimum, I suggest that you purchase the accounting software mentioned above, and at least three other financial software products: Bill.com; Expensify, and Gusto.

As its name implies, Bill.com helps you pay bills. This is especially important when you don’t have a lot of accounts payables or receivables and you’re using QuickBooks or Xero. Note that as you graduate to a more powerful accounting systems like NetSuite, you will have a very good, well-integrated billing system as part of the software.

Also as its name implies, Expensify is a system that helps travelling employees fill out expense forms. Their intuitive interface totally simplifies the arduous tasks related to expense report.

As its name does not imply, Gusto is a payroll processing software platform. Like the others, it’s designed for smaller companies, especially those who do not yet have a dedicated payroll position on their accounting team. Gusto also has HR and benefits management capabilities which are worth looking into. As with the billing function example above, the longer-term back-office solution NetSuite has a built-in payroll function that will supersede the need for Gusto as you grow larger.

These are the software products that I recommend to almost all of my startup and early-stage clients. Note that I do not get paid to endorse them; I do it because they are good, solid products. These particular ones integrate with each other and reduce redundancy and duplication of effort and thus streamline efficiency in many of the required tasks. You will really benefit from this efficiency at this stage of the business.

Bonus software tool: Carta. If you have investors, you probably now have shareholders. And managing the equity between everyone – especially yourself – is critical to your long-term success, especially your exit strategy. Carta is an intuitive equity management system that helps you set up your cap tables so that everyone involved can easily understand who owns what percentage of the business and so on.   

Like the accounting software mentioned above, I recommend that you hire a professional to help you implement these software tools and tie them together so that they function as efficiently as possible.

Note that I will be publishing a post on The Top Five Software Products for Startups soon. Be on the lookout for that article.

Don't forget your investors.

During prefunding, you spent a lot of time talking to investors. Now that you’ve closed a round, it's tempting to change your focus building products and getting customers. But you want to keep vendors in the loop. They don’t have inside access to the day-to-day workings of your company. Instead, they rely on you to provide accurate, up-to-date information. So they need your direct insight.

Those investors may want different information. One may want a cash-flow update, another an income statement, and another may question the tax implications of a new product. For a company that is not finance driven, those analyses may be confusing. Not doing them is not an option, and doing them on your own is risky. So it’s a good idea that once you're funded, enlist the services of a professional accountant or firm to provide this information back to your investors.

Also, make your investors part of your tactical decision-making process. Talk to them within a month after getting your funds, and let them help you make important decisions and make a positive impact. Provide them with the three main financial statements: income statement, balance sheet, and cash flow statement on a regular basis, minimally every quarter. This will provide your investors with a realistic picture of your business, and not just when things are going well.

At a minimum, your investors should be on your advisory board, ideally along with your interim CFO, to help you make the best use of your funds.

To sum it all up…

Many companies have approached me to ask, “What works the best for your clients?” We at Kranz have worked with hundreds of start-ups, and the above software and system combinations have been a proven model of success. I’ve had the benefit of seeing the results. As your company grows there are additional suggestions for back-office tools, and I will provide more on that in an upcoming post.

Obviously every business is different, so it is wise to have a consultation for that is specific to your business.

I hope that this gives you a few ideas as to how to create processes and systems to best utilize your newly acquired cash. It will help you sleep at night – and keep your investors happy!

I’m sure that you have questions and I’d be more than happy to answer them. Please reach out to me at kimberly@finopsadvisory.com at any time.

Oh, and congrats again on the recent funding!  

All my best,

Kim