May 2012
eCFO Tips: Budgets and planning gives you, the CFO, the opportunity to teach people the relationship between financial figures, strategy and operational decisions. As a planning and supervisiory tool, financial planning and budgets are absolutely essential. In a well managed start-up you will be controlling costs through the methods described in the liquidity controls – so budgets are not used in the “traditional” way, more established businesses might be using them, e.g. to allocate resources and prevent overspending. Rather, they help you to raise everybody’s awareness of the impact their actions have on the financial results.
eCFO Tips: This is a good exercise for start-ups in very fast growing markets. It will help to illustrate that if your market is growing by 30% per year and your company has top-line growth of 25% you are underperforming. If your company is not even growing in line with your target market something is wrong. Often your CEO and employees will be surprised by this analysis. A relatively high absolute growth rate is often mistaken as exceptionally good but this is not always the case. This analysis will give you credible arguments for operational improvements and structural changes.
eCFO Tips: Liquidity, controlling, budgets & planning will keep you very busy as eCFO. Once these measures have been implemented and accepted by your team, you can move on to other subjects. In my experience, this will need
a) a great team that supports you
b) at least a year of very closely monitored controlling
c) constant checks if you are still in line with operational reality
Make sure that you never implement a task that will keep you permanently operationally involved. Your team, technology and tools should be doing this work and if you find yourself constantly involved with these tasks RESTRUCTURE and make these tasks completely independent of you.
Pre-May 2012
eCFO Tips: Controlling is all about data ANALYSIS and FOLLOW-UP ACTION. If you cannot effectively collect, store, organize and eventually analyze data you will not be able to install effective controlling measures. Nevertheless, be mindful that all too often management will focus on the process of collecting, storing and organizing data and will forget that the key aspect is the analysis and the changes/learnings/actions you derive from it! Action trumps collection!
eCFO Tips: Be aware of cash accounts outside of your normal banking activity. Paypal, AdWords/Sense, Affiliate accounts, Amiando, e-commerce shop accounts etc. can be a significant source or drain of cash. Make sure that each employee notifies either you or your team when a new account is created. Every account that uses cash should be treated as you would treat a regular bank account. I am sure as CFO you wouldn’t allow everyone to open a bank account by themselves – why should it be different for these accounts?
eCFO Tips: I have found a range of great SAAS products that support this process. Remember it is not your job to collect, store and prepare data for an analysis – as CFO you have to act on this data! Personally, I like the functionality of:
a) easybill.de for organizing my invoices
b) mite.com for time tracking and budget planning
c) highrise.com as CRM tool
Using a SAAS tool makes it fairly easy and inexpensive to keep track of your key data. Confidentiality here is also very important but in general these tools have solid user controls and are well protected from possible hacker attacks – even though there is of course the risk that your data is stored on a server that is not under your control.
eCFO Tips: Don’t have blind trust in your accountants – meet them at least every two months and explain your business model, each large project and what you do – only if you do that will they be able to prepare correct statements. They are not part of your business – especially if you work on innovative projects or in new technologies such as Facebook, Google etc. Therefore, they will not have a strong operational understanding.
eCFO Tips: Especially online focused ventures can easily create a fully functional click dummy, wireframes and a strong web presence to convince investors with more than just nice looking slides. This will help you to move your valuation discussion to a whole new level.
It becomes trickier in the seed financing round. Here the amounts of money needed are more substantial and can often not be contributed by only the entrepreneur or FFF. I would advice to look for a partner in this stage who can contribute more than just capital. This is probably one of the most overused and equally misunderstood statements ever used.
eCFO Tips: ALWAYS make sure you understand what drives a financing partner. The average VC will have a three year fund raising cycle that means they have to go out and raise / pitch for new capital one year after closing their current fund. The VC world has become a significantly tougher place – many VCs failed to raise capital during the financial crisis. If an action that puts your venture in jeopardy but will help their fund raising comes up it will be clear what they will do. Be prepared.
eCFO Tips: Call-options are funny things – you are giving away your company at some point in the future without having any indication, beyond wild hopes and dreams , of its value at the time of exit. Remember that in general there are some things are just as true for a strategic partner in the future as in the present– they will still have more lawyers than you do, they will hopefully still have a substantial strategic interest in your company and they will have cash.
eCFO Tips: Don’t forget about online specific issues such as PayPal, Adwords & Adsense accounts, facebook ad accounts; linkbuilding accounts etc. Here you have a source of expenses and income that can come as quite a surprise.
