The Importance Of Financial Management in a Startup

Startups in Spain tend to trivialize the importance of the financial management of its businesses, and often look down on it, considering it a “simple number producing” activity related to “gestorías” (agencies that undertake administrative work).

But companies who care for having a first class finance management from the beginning have some clear strategic advantages:

  • Efficiency: Releases time from other key positions of a startup — founders, CEO’s, CTO’s, CPO’s, Sales Directors — who otherwise have to do financial management in a partial, reactive and non professional way.
  • Data analysis: Beyond the “simple number producing” label, the company becomes a data-driven organization, managed by information and data. Data rigorously analyzed, linked and integrated that keep the board well informed, adding value and guiding the strategic decisions.
  • Organization processes: Process is everything! With a sound base of financial and non-financial metrics, the company can adopt a rigorous and standardized weekly and monthly operational cadence. The Board and the Board of Directors ensure that the strategy is implemented and that any significant variation is discussed, debated and, if necessary, corrected.
  • Visibility: To third parties — investors, strategic partners and financial partners — a level of confidence is transmitted when the company has a strong and professional financial management.

Here are the answers to some frequently asked questions:

I do not have CFO, so what?
Many companies make the mistake of assimilating a professional financial management to large and complex enterprises. Nothing could be further from the truth. There is a clear advantage to professionalizing the role from day one .

Now or later?
Now! The main reason for delaying the decision of professionalizing the financial tasks of a company is usually the cost, since it is not a function of the front office. Companies that pay attention to financial management from day one are able to scale their operations better. Instead, those companies that wait to succeed, often discover that they professionalized their financial department too late.

Common mistakes:

  1. “We are facing a shaky and not cohesive organization with respect to key metrics”.
  2. “We must walk the path of one year in only one month”.
  3. “There were mistakes in the initial approach of the company that are now expensive, slow and delicate to fix”.
  4. “In an emergency such as a financing round or an internationalization process, the finance area may not respond adequately and quickly enough”.

Having a “gestoría” is not enough?
No. The accounting data is not directly interpretable by the business and, in any case, someone should do the job of adding non-financial metrics, interpret them, report them and discuss them appropriately with the board. Raw data do not add value.

What is the difference between the financial management in a small company and the one we might have later, once we succeed?
Essentially the cost and the flexibility, not the quality. On each growth-phase of a company, complexity and business success requires a CFO model adapted to it. But maintaining the common elements that we discussed earlier in this post. It is a mistake to wait for the company to succeed to change from an external financial agency to an internal CFO, who is capable of dealing with a millionair financing round or sell the business. The change is too abrupt, and the results do not occur as quickly as the company would like .

Given the need for a startup to have a professional financial management service, we have identified the following solutions:

  1. The startup has a CFO who is also a co-founder and who knows and wants to grow with the company. This CFO cost should be aligned with the initial business needs.
  2. The startup has an independent CFO who can growth with the company. He/she has to be able to gradually adapt to new situations, challenges and complexities. And the company has to be able to retain him/her!
  3. The startup has a service support tailored in terms of commitment and cost. This service provides the support needed on every life stage of the company and it is able to scale with the business.

This post appeared first on Delvy Law & Finance blog, on February, 3 2015

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by Xavier Sansó
CFO at Delvy Law and Finance

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