Most startup founders spend 60+ hours every week on three key aspects of their business that absolutely deserve their time and attention:

• The product: Product market fit, value proposition, feature set, product development and roadmap and engineering
• The customers: Ideal customer profile, go-to-market strategies, sales process, customer acquisition and customer success
• The team: Attract and hire the right people, inspire the team, nurture the employees and build the right culture

If the founders get these three things right, chances are the company will grow and achieve success. There is however, one more area that is critical to ensure the growth and long-term success of the business and that is financial management. Effectively done, financial management ensures that the company has the resources to build a great product, attract and engage the right customers and recruit the right team.

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The 12 Components of Financial Management

Effective financial management is much more than simply processing the company’s accounting transactions.  It includes a range of tactical, strategic and transformative financial actions which equip the company’s leaders with the insight and tools to keep the company on track.  

1. Configuring and using accounting system(s) to facilitate and record transactions such as invoicing, cash receipts, purchase orders, vendor payments and payroll  
2. Generating basic financial statements such as income statement, balance sheet and cashflow on a monthly, quarterly and annual basis
3. Setting monthly, quarterly and annual budgets  
4. Analyzing actual performance against budget  
5. Creating rolling forecasts
6. Monitoring cash flow and proactively taking actions to manage cash burn  
7. Assessing impact of resource allocation, spend and revenue on runway
8. Tracking KPIs and developing insights based on financials for company leadership
9. Ensuring compliance with tax and other financial regulations
10. Managing the cap table and tracking 409a valuation
11. Preparing financial content for board meetings
12. Helping with fund raising including setting up and managing data rooms

Effective financial management provides the foundation for sound operating decisions and supports sustainable growth. As a startup scales, financial complexity will increase making it essential to have robust financial processes and systems in place early in the company’s lifecycle. This will allow leadership to maintain control and drive growth of the business.

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Doing the Work

A well-managed finance and accounting function is essential to a company’s long-term success. Building this capability however, is not quite straightforward and requires an understanding of the evolving needs of the company over time.  There are three ways to build this capability:

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1. Build the Finance team internally.  For well-funded startups with a clear and achievable growth trajectory, hiring experienced staff is likely the best option.  While this approach will require a significant upfront investment, the expectation is that growth will eventually offset these costs.  Even with a strong internal team, founders should expect the need to engage external specialists for specific areas such as tax compliance, accounting advisory, audit, valuation, diligence, etc.
2. Engage a service provider to perform financial management tasks.  Founders should consider partnering with a qualified financial services firm with the right mix of qualifications, experience, expertise and service capabilities.  There is no substitute for experience and engaging the right firm can deliver immense value and operational efficiency.  Structuring the relationship to scale as the company grows will optimize costs over time.
3. Adopt a hybrid model. Establish a lean internal team to manage core finance and accounting tasks and complement this team with an experienced, external service provider.  Engaging with a firm that has successfully supported similar growth journeys can provide invaluable perspective, reduce risk and accelerate progress.  

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In conclusion, financial management must be prioritized as a core, foundational pillar of the company. Doing so will enhance organizational stability, enable strategic decisions, and ensure compliance. Effective financial management is not just about keeping the lights on; it is about empowering the startup to thrive and achieve its full potential.