CFO's Advice on Financial Planning for Early-Stage Startups
As startups and new companies are just starting out, financial strategy is a key component that plays a large role in a company’s success. Finances are often where most early-stage startups struggle the most. Many new business owners may find it difficult to determine when the need arises for a CFO or financial team. Recently, it’s become more popular for early-stage startups to work with CFO consulting agencies and outsourced financial experts for longer periods of time.
Joe St.Germain is the founder and CEO of Company Launch Partners, a financial management firm that focuses on helping startups and emerging growth companies. We spoke with Joe about different financial roles that are important for early-stage startups, best practices of financial planning, and the future of financial modeling.
Finfox: Hey Joe, thanks so much for joining us. Tell me a little bit about what you do.
Joe: Company Launch Partners is a company I founded earlier this year. Our mission is to provide CFO and financial management services to startups and emerging growth companies in the critical stages of early development.
We are currently serving clients in both the Boston and Providence markets. We will partner with a company to be an end-to end-solution, helping to fill gaps in the places where they need it most. That includes development of strategy as well as advising on the operational side of things like cash flow management, financial projections, or financial modeling. We really aim to drive efficiencies in the accounting and financial process.
Finfox: What kind of companies do you work with?
J: We've run the gamut of a lot of different industries. A number of data and tech companies; SAAS companies including financial technology and medical technology. We're also involved in not-for-profit and social impact companies as well.
Finfox: As a CFO coming into a team, what are problems you're going to be solving?
J: Well, the saying: “Cash is king” exists for a reason, Dmitry. It almost always comes back to cash flow management. We oftentimes find ourselves preparing financial modeling, or short-term financial forecasting to understand revenue sources, costs, and the gaps in the math. That's probably one of the biggest challenges that companies face.
Finfox: Let's say for a company that’s growing, at what point do they bring on a CFO or a CFO agency like yours?
J: It's about understanding a company’s team components and what gaps they have. Do you have somebody that can or cannot fill that financial need? Some teams have somebody in the early stage that has some financial background. They don't need a lot of support until they get a bit larger.
Finfox: How big of a finance team do companies need at Series B?
J: At that point, there's usually a smaller staff. The CFO needs to be more strategic in their thinking. They really should not be doing the day to day operational tasks.
To enable growth at that point, there's often either an Accounting Manager or a Controller. Somebody to supervise and handle the day-to-day financial operation of the company. A financial manager, or Controller, is needed to help control cash. They're the people who should be able to help make your cash last. They've got to be that watchful eye on the ground.
Finfox: To build on that, how would you describe the difference between a CFO or a Controller?
J: Front end and back end of the process. Front end, the CFO is really looking ahead. Where is our industry going? Where's our fundraising? What are the board concerns? They’re right-hand to the CEO in guiding the ship.
The Controller is at the level below that. Are the accounting records correct? Are we okay with day-to-day banking relationships? Where are we with collecting money from customers? They're working at that level, more into detail -- so that the CFO can focus on the bigger picture.
Finfox: To complete the picture, can you tell me about a bookkeeper in a company?
J: The bookkeeper is entering the transactions and recording things. If an invoice is coming in, they're entering it into a system. They are sending out the invoice to a customer. They're helping reconcile the account and keeping those things straight. They're in the day-to-day processing of transactions.
Bookkeeping is one of those things that is using artificial intelligence. It’s being more driven by automation these days. Xero, Quickbooks, and other companies have some tools out there that are helping drive that.
Finfox: You mentioned A.I. and new technologies coming into this space. What are areas where technology might be able to assist folks in finance in doing their jobs better?
J: I think tools like the financial modeling are very helpful and can be automated with technology. You guys are providing a great example of that. Being able to provide more data analytics and to interpret data is becoming more and more critical.
Finfox: Are there any tools that you can’t live without right now? I'm sure Excel is one of them. Do you see Google Sheets becoming more prevalent as well?
J: I'm almost using Excel and Google Sheets interchangeably. I am seeing more financial modeling happening in a Google Sheets environments with startup companies. My preference is to utilize Excel for the more complex modeling and Google Sheets for things that might be a bit more simple, more collaborative in nature.
Finfox: Do you prefer Quickbooks or Xero? What about things like eShares for Cap table management?
J: I’m a Quickbooks guy. I think you can take any area of the business, Dmitry, and say: Where is there automation out there? eShares really has done a great job of taking on cap table management. It’s become a leader to the point where I hardly ever see cap tables managed in Excel anymore. Another one to look at is Shoebox [Financial Solutions], which does cap table management but is a bit more encompassing. It handles a lot of file management for a company.
Finfox: From your experience as a CFO, what are some pitfalls that companies run into that are avoidable?
J: It’s a good question. Not having a clear financial model can be a real pitfall for companies as they're developing. I see a number of companies constantly struggling with that. We try to bring good financial modeling approach techniques to them.
Finfox: As we're wrapping up, do you have any closing thoughts for startups that are getting to the point where they need to bring somebody to organize finances?
J: With start-ups, you might not feel like you can afford to have somebody on staff for finance, but you also can't afford not to. The sooner you can get good financial management early on, the better. It pays in dividends later.
Finfox: This is great advice, thanks so much for finding the time to talk to us.
Learn more about financial planning for early stage startups with Finfox. We work with experienced CFOs to develop custom financial models that you can try here for free!
Photo courtesy of Alejandro Escamilla.