Top Financial Pain Points Startups & Growing Businesses Face—and How to Conquer Them

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Delegate CFO: Hello, everyone welcome to today’s program on the top financial challenges for startup companies.

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Delegate CFO: My name is Steve Hovland. I’m a certified public accountant as well as a certified forensic accountant. And I am the founder of Delegate Cfo.

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Delegate CFO: Today. We’re going to go through the top issues that startups and growing companies experience in their particular companies. Now, a couple admin items, this webinar is being recorded. So if you miss anything as we’re going through this, we will have a link to the replay, and the replay will also be hosted on our website. Also, we will be sending you the slides at the end of this particular program.

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Delegate CFO: Also, if you have any questions as we go through this process, please feel free to put them into the Q&A feature in zoom. So let’s go ahead and get started on our particular

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Delegate CFO: program. So, as I mentioned today, we’re going to do

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Delegate CFO: the top startup financial challenges and what they see on the particular and what we actually see on those.

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Delegate CFO: And so for today’s agenda.

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Delegate CFO: obviously, we’re going to talk about mastering your cash flow and runway, and the runway is when you ultimately run out of cash. And that’s the best way to think about that.

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Delegate CFO: The number one mistake founders make. And again. This is from our experience on what we’ve seen on founders and growing companies. Now, there may be other items that may be considered. Number one mistake, but these are what we predominantly see, as we’ve been in this business for a while, tools for forecasting and budgeting, navigating, fundraising with confidence, and not only just fundraising a lot of times with talking with your investors and potential investors.

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Delegate CFO: the key metrics that those investors care about.

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Delegate CFO: and then scalable founder friendly financial systems. In other words, we want to make sure that your financials

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Delegate CFO: are user friendly for you, for your particular industry and or company.

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Delegate CFO: Now, 1st item, mastering your cash flow and runway.

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Delegate CFO: Why does this matter?

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Delegate CFO: Well, ultimately you want to be able to outlast your runway, because that means your survival. In other words, if we think about it another way, you want to make sure you don’t run out of cash, because what a runway is in the very high level terms

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Delegate CFO: is, it’s when you ultimately will completely run out of cash in the business. And so that’s a better way to think of the runway is you want to extend that runway as long as possible, so that you can keep function as a particular organization.

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Delegate CFO: Now.

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Delegate CFO: how do you master this? Well, you need to be able to model your cash inflows and outflows monthly. Now.

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Delegate CFO: one of the things you have to understand is before you can even do your model on your cash inflows and outflows, you need to be able to develop a budget, and this is one of the keys for any company, whether you produce a product or do a service. You have to have a budget in place that’s very paramount for your company.

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Delegate CFO: And so when you go through and put your budget together. You’re going to say we’re going to have X amount of sales in each month. We’re gonna have X amount of expenses in each month, and then you’re going to come up with a net income number.

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Delegate CFO: Well, when we do the cash flow part, the cash inflows and outflows.

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Delegate CFO: That doesn’t always necessarily match up to your budget, because your budget is really on what’s called a gaap basis, generally accepted accounting principles. So, in other words, you have your expenses, your revenues that you’ve earned at that point in time, and your expenses to come up with your net income.

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Delegate CFO: However, a lot of times that revenue is revenue that you’ve earned, but not necessarily collected. And so.

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Delegate CFO: as you’re the key part to understand, that is.

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Delegate CFO: we have to have that budget because we need to know what we’re going to be selling and what our projected revenues are going to be.

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Delegate CFO: But then we need to convert it into a cash basis. So we understand when we’re going to run out of cash, or are we gonna run out of cash?

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Delegate CFO: So case in point.

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Delegate CFO: you sell your product. Let’s say you sell a physical product and you budget a hundred $1,000 in revenue in July.

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Delegate CFO: But because of your terms.

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Delegate CFO: you’re not going to collect that until 30 days, or your customers have 30 days to pay. So, even though your income statement shows you have $100,000 in revenue, your cash that you’ve brought in, or your cash inflows may be half of that. Maybe half of those customers are paid, and the other half aren’t going to pay until the next month.

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Delegate CFO: And so that’s 1 of the key differences is, when does that cash truly going to come in? And when do you have the cash go out. So

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Delegate CFO: again, you need to have your budget together, because we need to know what our sales are going to be. In August, September, October, November.

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Delegate CFO: and then from there we need to calculate what’s the expected cash inflow? And then, of course, then we do the expected cash outflow.

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Delegate CFO: and we produce, we combine those to determine. Are we going to have negative cash or positive cash flow for those particular months?

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Delegate CFO: One of the keys, you need to understand is on that cash inflow and outflow. You need to also incorporate any inventory purchases. Again, when you purchase inventory, you’re not just purchasing enough for the next product run, you’re purchasing large quantities of inventory so you can make multiple product runs so that needs to be built into your cash model.

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Delegate CFO: Then you need to track your burn rate and forecast your runway regularly. So burn rate is. There’s 2 aspects into burn rate. There’s the gross burn rate on the total expenses that you’re

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Delegate CFO: incurring, and that’s how much you have to pay every month for those expenses or or yeah for the expenses.

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Delegate CFO: And then there’s the net burn rate, which is your expenses less any cash that you’re going to get in for that particular month, ie. Sales that you collected, and so you need to know how much cash you’re burning. Obviously, ultimately, we want to get to the point where we’re not burning cash net. We have a net not burning cash.

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Delegate CFO: but for our purposes, for startups and growing companies. We need to know how much cash we’re burning monthly, and if possible, you want to do a daily cash burn as well. The reason why we want to do that is a lot of times with your budget. You break your budget down on how many sales, how many units you have to sell per day? Because sometimes that makes it easier to wrap your mind around?

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Delegate CFO: Is it logical that I can sell 10 units per day when normally I can only sell 3 units per day. So that’s also why you want to break down your cash. Burn is not only knowing what your monthly cash burn is, but what’s your daily cash burn? How much cash are you burning per day? So that gives you kind of an idea as to okay, we’re burning, let’s say, $1,000 a day, but we’re only bringing in 500 a day. How do we? How do we identify that? How do we fix that? And that’s really the next step is.

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Delegate CFO: you want to identify your cash gaps early and take action. Fast reason being is.

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Delegate CFO: you may have a gap in, say July, but you’re not out of cash, so you know, you may not react to that. That’s why you do your runway to see. Okay, when do I run out of cash? If you say you’re going to run out of cash in December, and we’re currently in July.

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Delegate CFO: That gives you enough time to make adjustments to your cash outflows or inflows to compensate for that, because the longer the time period you have, the easier it is to make those modifications. If you get to say November, and you haven’t changed anything. Trying to make drastic cuts to get through December might not be feasible or doable so

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Delegate CFO: and then, of course, pro tip, use cloud-based tools for live Updates. There’s a lot of tools out there that allows you to synchronize your accounting records into either a dashboard or even a cash flow

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Delegate CFO: indicator, and so utilize that information. If if you have available.

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Delegate CFO: What other questions we have?

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Delegate CFO: How do I accurate, accurately calculate, and extend my runway with inconsistent revenue?

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Delegate CFO: Well, that’s not going to be any different than mapping out revenue linear.

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Delegate CFO: You’re just going to know or just have to understand, that you’re probably going to have a lot of peaks and valleys. So if you’re inconsistent revenue. Say, July, you have 3 jobs that you did, and you got the revenue on that. And then, August, you don’t have any jobs. And then September, you got 2 jobs.

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Delegate CFO: Your cash inflow is obviously going to be higher those months, so you’re probably going to have a positive cash burn

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Delegate CFO: on those months, and then the other months, you’ll have negative. So you need to smooth that out and look at not only the respective months, but how does that flow through extending out, because again.

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Delegate CFO: we want the runway to keep going. We don’t want to outlast our runway, so, even though we may be inconsistent with our revenue, we need to make sure. We consistently map that all the way out. That was a good question.

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Delegate CFO: Next item.

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Delegate CFO: So the number one mistakes founders make, and of course, how to avoid them.

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Delegate CFO: The biggest mistake is just not knowing your numbers.

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Delegate CFO: You know, because of a as a founder and growing business.

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Delegate CFO: You get very, very focused on growth. You know. You want to go out and get that new customer or get that new job, or, you know. Get in with Walmart to sell your respective products, you know. Whatever it is. You’re very, very focused on building growth in your company.

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Delegate CFO: however, a lot of times. Founders don’t pay a whole lot of attention, or as much attention, I should say, to their margins, and how much cash they’re burning.

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Delegate CFO: And so it’s very important that you understand what your margin is and recall from the previous webinar. Gross margin is sales minus cost of goods sold equals your gross margin.

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Delegate CFO: That number at a minimum has to be positive. That number is not positive. It’s, you know, 0 or negative. It doesn’t matter how much you’re going to sell. You’re you’re not going to have any positive cash inflow and same thing with the burn, understanding how much cash you’re burning each either day or by month.

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Delegate CFO: So that gives you an idea as to

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Delegate CFO: what kind of sales do you need to generate? What kind of line of credit do you need to get. What have you? Another mistake is financial blind spots that causes that, you know will cause a surprise crisis and a lot of times. Obviously, if you’re selling a product that’s at a loss that’s going to be.

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Delegate CFO: it’s gonna show itself very quickly.

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Delegate CFO: However, one of the big blind spots that happens, especially with a growth company or even a mature company that’s experiencing rapid growth

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Delegate CFO: is when you sell your respective product on credit and by credit is the customer doesn’t have to pay for 30 days.

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Delegate CFO: You have rapid growth.

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Delegate CFO: So if you just think of a bar chart, you’ve got rapid growth going up at an angle.

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Delegate CFO: and your net income is going up because you’ve got those sales. You’ve earned that revenue. However, you’re not collecting that cash until 30 60 days down the road.

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Delegate CFO: however, with any growth, especially with products

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Delegate CFO: you have to bring in more inventory. So if I’ve got sales and they’re they’re going up at an angle, you know, 45 degree angle, because they’re just rapidly growing.

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Delegate CFO: and I’m having to constantly bring in more inventory to meet that demand. So more and more people want, you know, this particular unit. And so I’m having to bring in more raw material I’m having to, you know, have the manufacturing plant work overtime. So that’s all cash outflow that I have to pay for right now.

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Delegate CFO: But those cat, those sales that you’re doing you’re not collecting those till 30, 60 days. And so there becomes this disconnect between how much cash you have to do outflow to meet the demand, for, you know, to bring the product in pay for, etc.

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Delegate CFO: And then the other side is the sales. You don’t get those sales collected until significantly later. And so that is one of those unusual blind spots that as a founder, you’re looking at your income statement. You’re making all sorts of net income.

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Delegate CFO: However, you have no cash, and it’s because of that particular issue. And again, but this even happens with mature companies. You know you have a mature company, that’s you know. Their sales have been kind of steady, you know, for quite a while. Then all of a sudden, they have a hot product everybody wants, and then they have to ramp up everything, and they incur the same, or they experience the same aspect of that. So that is one of the big blind spots is when you have rapid growth

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Delegate CFO: a lot of times, even though you have net income, you actually will have a negative cash flow for, you know, several months, and sometimes it takes 3 to 4 months to flip over. Once your sales start to level out.

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Delegate CFO: then your cash flow will start catching up, and then you won’t have necessarily have that issue per se.

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Delegate CFO: Now, how do you avoid this?

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Delegate CFO: Establish regular, accurate reports? And this is just fundamental accounting. You need to make sure you have income statement, balance sheet, and a statement of cash flows. A statement of cash flows is very important, and unfortunately, there’s there’s quite a few accountants out there that struggle producing the statement of cash flows. However, that’s a very key instrument in analyzing your financial statements, because it gives you an idea as to

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Delegate CFO: the cash that’s coming in? Is it coming in from operations? Is that positive? Is it coming in because you’re just taking out debt or bringing investor money? It gives you kind of a better idea. But that is a very important work. Then, obviously, you want to make sure that those reports are accurate. So with our particular Cfo firm.

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Delegate CFO: each of our clients we do what’s called a mini audit so, and what that entails is the balance sheet for each of those companies we will tie out, and it’s called, Tie out. We’ll prove the significant numbers on the balance sheet are supported by external documentation, such as the income statement, or I’m sorry the the cash is supported by a bank Rec. And a bank statement, so that proves out that number.

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Delegate CFO: The accounts receivable ties out to an AR subsidiary ledger, and that AR subsidiary ledger is correct, and there’s no unusual items in there. So we we go through and prove it, because

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Delegate CFO: if the numbers are not correct on your balance sheet, you’re going to have something incorrect on your income statement, which then causes you either to make a bad decision or not realize you have more cash, outflow, etc. So you want to make sure those reports at a minimum. You want to make sure your balance sheet is accurate that you’re using each month.

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Delegate CFO: Obviously review these key financials monthly, preferably timely. You know. Sometimes you’ll have issues where, if you do e-commerce, and you’re waiting for a lot of the revenue to sync synchronize back into your accounting system, and that might not happen for, say, 5 to 10 days.

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Delegate CFO: Then at that point in time you should get your financials. Get them tied out, get going, if you do your financials Monthly, and you’re tying up the balance sheet monthly. Getting the next month won’t be that big of a deal. Now, if you haven’t done it for a while, the 1st set of financials may take longer, but you want it timely and preferably about 15 days, 10 to 15 days after a month, and depending on if you’re waiting for certain transactions to synchronize in

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Delegate CFO: and obviously ask questions and partner with a financial pro.

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Delegate CFO: Not only do you can you ask questions of that particular individual, they don’t necessarily always have to be financial reason. So some of our Cfo clients.

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Delegate CFO: when we meet with them weekly, we sometimes will delve into areas that are, are not necessarily our expertise.

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Delegate CFO: but we’ll give some insight as to how we view that respective data, such as you know the row as on. You know the Amazon sales. You know we may

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Delegate CFO: not have the SEO background, but we’ll we’ll start analyzing and work with them, and sometimes

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Delegate CFO: we can be that sounding board for questions as to the financials, sales, sales, channels. What’s the effect on, you know? If you do move into another particular sales channel, what’s that effect. So use those partners and always bounce off questions, because sometimes just a simple question or response could trigger an idea within your particular company.

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Delegate CFO: Now, tools for forecasting and budgeting are simple spreadsheets. Good enough?

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Delegate CFO: Well, yeah, for for the most part they are when you 1st start out.

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Delegate CFO: because when you 1st start out. You need to be able to map out what it is you’re selling.

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Delegate CFO: What are the costs? What are the channels? What are the you know? Are you bringing in the inventory the raw materials from overseas? There’s a lot of variables that are built into your business. And so, using that spreadsheet will allow you to go through and start analyzing what it is. I want to analyze what you know, what particular costs are unique to my particular company.

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Delegate CFO: and whether it’s a particular cost that comes in that gets allocated to the product.

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Delegate CFO: Or

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Delegate CFO: you know, if you’re using a sales channel that you know, they take a 40% haircut, a lot of those different variables you need to build into your overall spreadsheet.

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Delegate CFO: 1st for your budget, then for your forecast, and then, of course, for your cash flow for your cash in and out.

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Delegate CFO: And from there, as you’re building that that’ll obviously give you a better idea as to what kind of software you’re ultimately going to want.

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Delegate CFO: Now, when you 1st start up, you need to have accounting software, and that’s kind of hands down. You must have some sort of accounting software. Please do not use excel as your accounting software that is not

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Delegate CFO: appropriate and can cause you major headaches down the road.

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Delegate CFO: Use something like quickbooks, even if you just do the very basic package for quickbooks

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Delegate CFO: track that data in there. Same thing, we can use 0 or quickbooks. They’re both very comparable. But start using those softwares and the use of quickbooks. You know you can use quickbooks for quite a while for your company as it grows.

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Delegate CFO: Don’t feel hesitant or trapped that you need to right away be able to go in and buy the high End $100,000 software. You probably don’t. Because again, think back to our spreadsheets, we’re trying to determine what it is we’re going to ultimately want in our software. Because when we get to that point that we’re going to move up from, say, quickbooks to a larger software package such as Eci.

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Delegate CFO: We want to know every little bit that we want to make sure that’s in that particular software package. So

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Delegate CFO: obviously, regularly update your forecast based on real results.

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Delegate CFO: And what this means is. So when you set up your budget at the beginning of the year.

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Delegate CFO: and you know, right now we’re in the 1st of August. So let’s say, we’ve we need to update that budget for January through July. So you go into that budget and again make copies of these. Keep your standalone budget and then make a copy and then update, you know, for the actual results. So your actual results for July for your income statement, size are X,

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Delegate CFO: and then from there, you can see. Okay, here’s what here’s my actuals. Here’s what I was budgeting. Here’s where I’m ultimately going to get. Because, again, this is going to come all the way back into our cash, inflow and outflow because we need to identify.

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Delegate CFO: Here’s what we were budgeting, let’s say, let’s say for July. We budget 100,000. But we only had 50,000.

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Delegate CFO: We put in the actual results. But we also want to do a budget. To actually say, Okay.

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Delegate CFO: is our budget off, and then we can analyze, you know, August, September, October, say, was that just an unusual month in July? Or is this a trend we need to adjust for, because again, that’s going to go back into your cash and into your runway, and of course set realistic budgets.

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Delegate CFO: You know, everybody wants to, you know, start up their business and make millions of dollars.

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Delegate CFO: But make sure it’s a realistic budget. So if you’re producing a product, and you want to budget 1.2 million dollars in revenue for the year which comes out to 100,000 a month.

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Delegate CFO: Is it feasible at your current state to be able to produce $100,000 in revenue, however many units that is, you know. Do you have enough inventory on hand to be able to do 100,000 in revenue. Do you have enough space and materials and workers to be able to do that? So make sure your budget is realistic again. This is all going to go back into our cash flow

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Delegate CFO: now.

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Delegate CFO: navigating fundraising with confidence. Now, this is obviously, if you’re a startup growing business, you know you’ve had to. Odds, are you probably had to meet with an investor and pitch your company, you know, and there’s also odds that you’ve pitched your company for investors, and they didn’t want to

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Delegate CFO: be prepared for any kind of conversation you have with those investors for your fundraising. Obviously, you’re going to know your story, this product super great product. We love it. This is what we think it’s going to do.

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Delegate CFO: But obviously you want to know the other parts of that. You know. What is the cost of that particular product. You know. How many skews do you have? What’s your margin on those skews? How much inventory do you need to bring in for each of those products, you know? Build your robust models, budget it out, forecast it out, and then do more or less a lot of times you hear it called stress tests, and it’s also called, what ifs.

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Delegate CFO: you know? Build that out and say, you know, what if this particular skew, you know we don’t have 100 units per month on sales, we only get 25 units per sale. What happens to that? What’s the cash flow impact?

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Delegate CFO: So you need to be able to understand. Obviously, if it goes all the way back to

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Delegate CFO: you, make sure you have accurate records, you have timely records. And then you’re updating, based on reasonable budgets. And so then from there you’re going to go ahead and make sure that you’re calculating out your stress test, you know, say, worst case scenario. Or what if scenarios, so that you have a firm idea?

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Delegate CFO: Because ultimately, what investors really want? They want reliable data, you know, again, making sure your balance sheet is 100% correct, and then from there it should trickle into your income statement. And so they want to know. Is this data correct? Do you have logical projections? Not just pie in the sky projections. But okay, this is what we thought, now, this is where we see the trend going. It’s going to go to these particular items, you know, we’re going to have more sales on the website versus Amazon, etc. Etc.

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Delegate CFO: And then from there you need to have clarity on use of funds. And this is where your cash runway comes in big.

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Delegate CFO: You can do a budget for your income statement, and that, you know again, that’s very important. But when you’re talking to investor they not only want to see that budget. They want to see your cash runway. And so that is key to understand. Okay, here is, you know what we’re projecting for net income. And because we’re projecting huge growth.

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Delegate CFO: Come September, we’re going to need to buy. You know this much inventory to then meet the demand for.

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Delegate CFO: say, November, December.

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Delegate CFO: And so you, if you have both those reports and you have your cash runway mapped out.

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Delegate CFO: you have a firm clarity on the use of those funds that the investor is going to bring in. So that that’s why you want to make sure you have reliable data and a budgeted income statement and balance sheet and your cash runway, your cash net inflows and outflows.

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Delegate CFO: One of the questions here is, how should I prepare financials and projections if I’m getting ready to fundraise well again. 1st

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Delegate CFO: make sure your balance sheet is tied out, you know. It’s tied out to the respective source documents, you know. Bank rec AR subsidiary ap subsidiary, etc, etc, and then make sure your projections

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Delegate CFO: are accurate, and in your projections, especially on the cash flow you’re bringing in anything that normally wouldn’t hit the income statement right away, which is usually going to be your inventory and equipment if you have to buy equipment, so make sure you have that all built into there

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Delegate CFO: metrics that investors really care about, and by investors. I’m also indicating bankers into this particular slide.

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Delegate CFO: Obviously, these are just some of them, you know, critical saas or tech. You know your your customer. Acquisition costs lifetime value, churn unit economics. If you have a product, is your margin cash conversion cycle, your runway.

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Delegate CFO: What you notice about those and those are just a few metrics, you know. There’s quite a few metrics out there.

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Delegate CFO: but these metrics, more or less, are another way of thinking of a financial lever.

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Delegate CFO: So you may have heard that term used out there that you know the financial levers of your company.

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Delegate CFO: They’re used, or that term is used because these particular metrics and these ones on the screen are ones that you can adjust and manage these metrics, and it actually will increase the net income of your company or cash flow of your company. And so that’s why they’re important, because a lot of times these metrics

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Delegate CFO: aren’t necessarily financial metrics.

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Delegate CFO: There are other metrics out there. There are non-financial metrics that allow you to

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Delegate CFO: manage the inflow, or either in cash, inflow, or or reduce outflow of the respective company. And so that’s why these are very important, and why investors and bankers

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Delegate CFO: really cure about these ones is.

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Delegate CFO: are you tracking that? How do you match up to your competitors? And how are you using these metrics to really manage your company? So one of the tips is obviously you want to build and track these monthly and again, make sure. Whatever metric you end up using is beneficial.

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Delegate CFO: Case in point is, there’s some

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Delegate CFO: accountants, Cpa firms out there that they love to use just a textbook ratio, such as current ratio. Now the current ratio is current assets over current liabilities, and you get a number. Obviously you want that number to be one or more.

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Delegate CFO: That’s a great ratio in in our firm. We call those warm and fuzzy ratios? Because

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Delegate CFO: yes, it’s it’s a ratio, and and you want to make sure that you have a positive. You know you you want more current assets and current liabilities.

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Delegate CFO: But at the end of the day, what what does that metric actually do for you to manage your company? And and the answer is, it doesn’t really do a whole lot, you know. It just gives you a calculation you just commit. You know you just did a mathematical calculation.

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Delegate CFO: but it doesn’t really help you.

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Delegate CFO: Manage your company, manage the cash inflow, manage? You know the churn rate if you’re in the tech industry, so make sure whatever ratio and metric you’re using is something that can be utilized for your company, whether it’s just tracking the respective AR aging or the cash outflow on suppliers. Whatever it is, it’s got to be something that’s beneficial to your company to help you manage your company

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Delegate CFO: now, setting up scalable founder friendly finance systems.

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Delegate CFO: Eventually you’re going to move beyond spreadsheets. Now, as an accountant, I use spreadsheets all the time, but eventually, in your company, you’re going to move from

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Delegate CFO: tracking your budget, tracking your forecast and spreadsheets to bringing it into a software. And again, remember, when we talked about earlier is when you’re setting up your budget. You know, the 1st time you’re setting up your budget and forecast.

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Delegate CFO: you’re going to determine or or realize you have a lot of variables built into your respective budget. You know the

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Delegate CFO: respective skew. Each skew may have a different gross margin, may use different materials, may have different sales, price type situations. So you have a bunch of different variables built into your spreadsheet to get everything to work and flow through.

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Delegate CFO: Now, when you’re doing the upgrade, you want to be able to have that software that allows you to do that same aspect without a whole lot of data. Input and so that’s why I say, when you build that spreadsheet, you then know what you’re going to want in your accounting software or your Erp software is, how do you want that to integrate back and forth.

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Delegate CFO: And again, make sure you choose a system that you’ll actually use and not avoid

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Delegate CFO: reason why I put that in. There is, I have seen a situation where a manufacturing company had been using a fairly high end erp system.

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Delegate CFO: But when an event, when it 1st came online years and years ago, through an older owner.

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Delegate CFO: the company wasn’t really utilizing the full aspect of that software. They were probably using about 10 to 20%. And again, part of that was probably because they just didn’t understand everything, or they just didn’t want to go. Or again, they were avoiding using it properly.

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Delegate CFO: Make sure whatever software you get, you’re using it to its full tilt. And again, you’re going to use your your spreadsheet that you developed to say, this is what I want into the software. And this is what I want it to do.

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Delegate CFO: And so then that actually makes it easier when you’re, you know, getting pitches from different software companies to find out, can it do X, you know, can I input a change in the value for this particular product? Or

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Delegate CFO: can I change where this product’s getting sold? Say, it’s getting sold in Amazon? And they take a 40% haircut, you know. Can I drop that in? And it automatically calculates out on my budget and forecast, and how many more units I have to build, etc. So that’s ideally what you want to be able to have

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Delegate CFO: again automate your bookkeeping payroll whenever possible. Most people use outside payroll service, anyways. So make sure you have that automated within your accounting system

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Delegate CFO: and very important, create. Your standard operating procedures for your finance processes

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Delegate CFO: again, this may seem overkill at first, st when you’re 1st building your company.

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Delegate CFO: but eventually, when you get to year 3, 4, 5, a lot of the people that started with you have either retired, moved away, been terminated. They’re no longer with the company.

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Delegate CFO: And so by the time you get to 3, 4, year 3, 4, and 5, you’ve kind of, you know, ironed out all the bugs, and you know how you want your particular company to run

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Delegate CFO: when you bring in that new person. If you don’t have standard operating procedures in place, they may deviate. You may be thinking, Okay, everything’s running smoothly. I’m going to go here, and you know, sell my product more. And then everything just goes off the rails. And so that’s why you want to have those processes in place.

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Delegate CFO: and a question here.

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Delegate CFO: When is the right time to hire a fractional Cfo versus an accountant or bookkeeper.

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Delegate CFO: Well, you can really hire a fractional Cfo.

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Delegate CFO: Technically, you can hire at any point in time, but if you’re just starting out, you can hire a fractional Cfo to come in and do one time projects for you such as help you develop an actual budget, help you develop a forecast. And then, as you start growing

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Delegate CFO: regardless, you always want to have an accountant or bookkeeper in place. You want somebody doing the data entry for you. But as you start growing, then at that point in time, if you start having higher levels of complexity, more products, more channels that you’re selling at.

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Delegate CFO: then you should consider bringing in a fractional Cfo. The other aspect is, if you bring in investor funds. So you went out to an investor

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Delegate CFO: right? And say a million dollars

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Delegate CFO: definitely would suggest, you bring in a fractional Cfo as soon as you get that money. Because again, the investor wants accurate data, and as a startup growing company. You’re going to be out there doing a lot selling if you’re having to go through and tie out all the financials and do all the financial statements yourself.

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Delegate CFO: or have to go back through and check the work of the bookkeeper. That’s taking time away from you building your company. So that’s why it’s very important. Again, that investor wants to have accurate data, and they want to have accurate projections going forward. And so that’s why you want to bring in that Cfo, so that

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Delegate CFO: you know they don’t come back and question you as to on the financial statements, and then possibly pull the funding, which would be a very worst case scenario. There.

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Delegate CFO: you know, couple examples that we’ve encountered

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Delegate CFO: Startup A, we were able to extend the runway by 6 months with proactive cash management. And again, this was one of those where we looked at. You know we did the calculate the runway out. It was actually obviously past 6 months.

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Delegate CFO: and we started realizing that with these certain expenses these were R&D. Expenses

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Delegate CFO: that they didn’t necessarily have to do those expenses. You know they could put those off because they had enough skews in place. So we determined that, hey, we can back off on these expenses. So if we do that. Then their their runway got extended, and then also there were some other expenses that we realized

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Delegate CFO: we can push these expenses or some of them. We just didn’t need anymore. And so then then it was easier to be able to look at those financials. But again, if we hadn’t taken the time to go through that

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Delegate CFO: we would have burned through the cash a lot faster than what had been originally thought.

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Delegate CFO: Now, Startup B, we help them with a series a after strengthening their kpis again. This went back to making sure your kpis are relevant to your business again. You don’t want to go through and put in a current ratio, if that’s not going to help you build your company. And so with this particular company.

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Delegate CFO: when we went through it, we determined what were the ones that really helped manage the company, and from there, when we went, you know, when they went to the series, A, they were able to demonstrate. These are the kpis we’re tracking, and in this case we happen to have some industry kpis on some of those. And so it made it

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Delegate CFO: better because we are able to show that. Yes, we’re managing it. This is where we’re at, and this is where we’re going.

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Delegate CFO: and then startup. C technically, this is a misprint. It really is a growing company. They avoided a cash crisis by catching a cost overrun early in that particular situation.

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Delegate CFO: They had developed a budget for a particular product, and they were doing a budget. You know, they were doing a product run. And on that particular budget, let’s just say it was a hundred hours to go through, and, you know, make this particular product.

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Delegate CFO: When they got done, we noticed that the costs were, you know, the the hours. Let’s just say they’re 120 h. So they had a cost overrun. So they had hours overrun which normally you have labor. You have overhead getting, you know, hitting that particular product.

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Delegate CFO: And when we went through we determined there were errors in the actual erp in the bomb report, and so we were able to catch that and determine because ultimately what was happening is more product was being more raw materials being put on the product that didn’t really need to be there.

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Delegate CFO: And so we were able to analyze. We caught those cost overruns. And then also, obviously, there were some efficiencies in their place. It wasn’t just material. There were some efficiencies that we were able to determine, and again, once we were able to catch that that allowed the cash flow to to flow into the company correctly.

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Delegate CFO: So now let’s go into the Q. And a. And we’ve received some of these questions.

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Delegate CFO: 1st question this came up.

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Delegate CFO: How do I avoid financial blind spots as my startup grows quickly and adds complexity.

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Delegate CFO: if you’re not gonna engage a Cfo, whether you do a fractional Cfo or in house. Cfo.

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Delegate CFO: Then you need to take time and map out, especially if you’re growing quickly and adding complexity. So I’m assuming complexity. You’re adding a new division or new product.

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Delegate CFO: You need to map out.

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Delegate CFO: because usually it’s going to be sales that we’re talking about. You need to map out how much inventory? If you’re doing a product, or if you’re doing a service, how many new employees do you need to bring in at that level? Say, like. It’s a county firm you have to bring in staff accounts.

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Delegate CFO: You need to map out how many of those you’re going to need. And what’s the ultimate cash outflows because a lot of times the financial blind spots are usually going to be

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Delegate CFO: negative cash or a lot more cash outflow than you’re initially anticipating. So make sure. If you don’t bring in a Cfo, you start mapping out everything related to those new growth or complexity.

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Delegate CFO: What are some warning signs that my financial systems aren’t scalable and need upgrading.

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Delegate CFO: Usually

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Delegate CFO: the the 1st warning sign is you’re spending a lot of time doing data input into your system on something that probably should be automatically syncing. In so case, in point, I’ve seen a manufacturing company that they had an Erp software.

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Delegate CFO: but they didn’t buy the the accounting software add on for this particular vendor. And so they had quickbooks, which was fine. The problem they ran into, or they started to run into consistently was, you know, the It. Guy built kind of a bridge between the Erp software and quickbooks so that it would sink in. However, a lot of times over several months.

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Delegate CFO: New products in the Rp. System were syncing incorrectly, or we were getting duplicates in there. And so the accounts were spending a lot more time just trying to get it to fix itself or get it fixed in the accounting software. And because they’re spending all that time on that, they’re not getting the financials out, and they’re not getting cash flows out, so on and so forth. So a lot of times, if you start having to spend a lot more time on something that probably should be automated.

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Delegate CFO: That’s when you probably need to start upgrading your respective software. And again, if you’re in the manufacturing world. You know an Erp software that does both the bomb side and the accounting side are probably the most ideal and same thing with even just software.

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Delegate CFO: How do you do your calculation? Or how do you do your your respective product? And how do you get? You know the payroll? And then into the county software. You want to try to get all that linked back and forth.

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Delegate CFO: And then last question, what’s the best way to track cash flow without a finance background or team. Ultimately, first, st you need to make sure you have a budget. You’ve got to have a budget because that is going to determine what your cash flow is

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Delegate CFO: in the future, because keep in mind.

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Delegate CFO: we are more concerned from cash flow

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Delegate CFO: as to what the inflow and outflow is going to be, you know, in the next month, 2 months year down the road.

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Delegate CFO: But you can’t do that calculation if you don’t have a budget. So you’ve got to get a budget together. And again, you can use excel. That’s perfectly acceptable. And then, once you determine, okay, how many sales am I going to have you know how much inventory do I need to order? You know how much expenses you know operating expenses am I going to have?

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Delegate CFO: You can start breaking that down, and then my recommendation is you

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Delegate CFO: at least monthly. Go back and say, okay for July. I was expecting to have, you know, a net inflow of cash of $10,000. And I had negative 30. Okay, why was there that difference? What? What did you not build into your your model, and then from there update your model and go forward. But again.

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Delegate CFO: if you’re not going to have a finance team on there, that at a minimum, you’ve got to have a budget, and you’ve got to have that cash output.

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Delegate CFO: So we’re running close to the last bit of our time. So

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Delegate CFO: if there’s any more questions that come in. Please feel free to shoot it into the zoom link. Or if you want, you can go ahead and email me, I can be contacted at steve@delegatecfo.com, and as well as you can also find out more about our company@delegatecfo.com, and again

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Delegate CFO: recording and materials of this webinar will be sent out not too long after the webinar. If you are watching this on replay, and you would like copies of the slides, please email us, and we will get those to you as quickly as possible. And again, thank you for attending this webinar, and I hope you have a great day. Thank you.