Financial stress is a given for most young startups, even in good times. Proper cash management, fundraising, meeting projections, finding the right pricing framework… they all contribute to a startup’s survival. So, how can a virtual CFO help your company get it right?
Learning from the right resources will help you seize opportunities and steer clear of financial pitfalls. But, so much has been written (and said) online about the winding road to startup success. So much that it’s hard to know which resources to truly align with your industry and stage of growth, and when to tap on them.
It’s no surprise then, that there’s a 30% failure rate for startups within the first three years, despite the relatively healthy ecosystem in Singapore. According to a 2017 study by the National University of Singapore, 56.8% of startups are found to be “struggling”.
The right financial resource(s) - a Virtual CFO in most cases - can help you cut through the noise and maintain a healthy cashflow. Here are the key areas where such a resource can minimize financial stress and dramatically enhance your probability of success.
Good financial information is the cornerstone of sound decision making. Data quality is only as good as the financial technology, process and team that produce it. Job one of your financial leader - whether a CFO, controller or both - is to establish the right systems and controls so you have a scaleable foundation for handling all facets of financial management. The right CFO will have a proven process for establishing a finance system that will make your startup hum.
A well-managed cashflow is easily the most important planning activity for a startup. By actively using cash management tools to project cashflow, you’ll be able to take appropriate steps that ensure you have the cash to cover obligations. Having an adequate runway can also do wonders for your business when raising capital.
Whether you seek financing from an angel investor, venture capitalist or a bank, you’ll need to craft a compelling financial story as to why they should invest in your firm over the countless alternatives out there. You (or your CFO) will need to be fluent in the right "financial terminology" and have clean, current financial statements to present.
You will also need to demonstrate your progress to date, as measured by the key performance indicators (KPIs) that matter most in your industry and for a firm at your stage of growth. You'll also need a financial roadmap that credibly illustrates how you'll leverage their capital to achieve your growth objectives.
Your board of directors can be a tremendous source of advice and support throughout your startup journey. But a collaborative relationship can't develop if you don’t provide your board members with sufficient ongoing financial reporting and operating metrics. Their counsel relies on great data. A suitable financial advisor can help you develop board packages that encourage constructive board engagement.
When determining the right incentives plan for the sales team, pricing a new offering, or selecting the most profitable niches to pursue, you’ll need accurate and useful financial data to drive key management decisions. Knowledge gained from these data will provide you with the confidence to take decisive actions.
Startups are incredibly dynamic and require the support of skilled CFOs that can stay ahead of your pace of change. A partner who will roll up his or her sleeves to provide a steady flow of relevant financial insights. Such a human resource should really be engaged on an ongoing basis, but the reality is, a full-time financial strategist like that is an expense that startups can’t fully capitalize on.
Our Virtual CFO services can help fulfil that need at a price and cadence that makes sense for startups. Read on if you want to know more on what outsourced CFO services can do for you. You can also learn what you need to know when hiring a Virtual CFO.