Posts

, ,

Is finance an afterthought? The rookie mistake that can doom a startup

During the initial months and years of a startup, CEOs are faced with the daunting task of building a company from the ground up. There are many issues to address, including product development, sales and go-to-market strategy, staffing, legal and finance. All of these are important areas to launch in order to get the company off to a great start.

But how much attention should each one get? All too often, in the push and pull when time is tight and so are funds, CEOs make the mistake of giving the finance side of the business short shrift compared to everything else. Understandably this happens when the biggest motivation at the moment is to get the business up and running. Survival is job one. Getting the finances in order rates as a low priority while other areas of the company receive the bulk of funding and care. “I’ll deal with that later,” the thinking goes, “and build it up in a few years when we’re really up and running.”

In the meantime, the company hires an office manager who takes on purely administrative duties, like handling payroll, processing stock administration, meeting the minimum compliance requirements, signing up for insurance, securing facilities, and creating and handling the initial accounting books of the company. While these are all necessary tasks and someone needs to do them, unfortunately, this person usually does not have the required skills and experience to handle them at a high level.

Is the cash burn rate being managed properly? Are the financials accurate? Is the company making the decisions about equity comp with the future in mind? Are inefficiencies building up and slowing down decisions that need to get made? Can one person pay attention to the changing tides of rules and regs?

Inevitably, problems will pop up if there is not someone or more than one person paying careful attention to the big-picture questions. Some of the potential problems are incorrect financial statements, serious delays in financial reporting, lack of expense control, payroll errors, inability to pass compliance audits, issues with stock administration, and numerous other tasks not being completed on time and up to par. The company could run into problems with lenders, banks, investors and see its growth potential falter—if inaccurate financial information is preventing smart decision-making.

Sounds messy and time consuming, and it is. It can also get expensive. Work will have to get re-done numerous times and the company could see increased expenses. And the CEO may have to run around fixing problems rather than building the business.

It’s completely understandable why finance does not get the full attention of the CEO in the “start” stage of the business lifecycle. It could be much too early to add a full-time CFO to the payroll. What is usually needed at this point is a part-time controller who can bring order to the mayhem and ensure all the yearly, monthly and daily requirements are done correctly. The role will help the company fend off potential issues and mishaps and keep the back-office running smoothly (and relieve some of the stress that is surely weighing down the office manager). So many startups get themselves in trouble when there’s a lack of order and discipline.

Another smart move around this time is bringing on an outsourced accounting team that can help the overloaded office manager by introducing efficiencies and new processes that will lead to reliable financials and a smooth operation. Over time, the company can work its way up to adding on a part-time CFO, who can provide critical strategic perspective for moving the business forward.

Put another way, the list of risky, rookie mistakes that are distracting to the CEO can shrink dramatically and the leadership can focus more on growth. The goal becomes how to get to the next level rather than “how are we going to get ourselves out of this mess?”

Need more input on the start stage and all the stages that follow? Download our intelligence report, Navigating the business lifecycle, which explores the four stages that companies typically experience, the finance challenges of each, plus real-life examples of organizations that have overcome typical obstacles.

Ron Siporen, a consultant on the RoseRyan dream team, has over 30 years of experience working with startup businesses, and he has been a successful business owner himself. He loves to help companies clean up problems and scale up for growth.

/by
, ,

Can you handle the IPO tsunami?

Executives who take on an IPO ride a long and sometimes unpredictable wave from start to finish. There’s all the debate over whether going public is part of the company’s grand plan, when to make the move, how the business will be valued, and then—the part that most people overlook—the arduous journey after the Wall Street debut.

Is your company able to take on the ups and downs of going public and then actually being a public company?

A lot of senior leaders are asking that question—or should be—in our region. It’s an especially hot time for life sciences companies on the IPO track in the Bay Area. The industry is riding a “three-year wave of renewed Wall Street interest,” and a relatively high number intend to go public soon. Fast-track tech companies and the $1 billion “unicorns” topping the news are adding to the talk about an active market.

From the moment the company decides to forge ahead with going public through the year or two after the actual offering, there are lot of adjustments and transitions in store. What’s the difference between companies that achieve success and those that falter (from embarrassing restatements and miscommunications with investors)? It’s all in the preparation, it seems.

By getting some essentials done early on, companies can navigate the choppy waters that come with taking on such a huge transaction—and the onslaught of new work and expansive demands that come with it. In that multi-year period before and after going public, most companies face a whirlwind of change and a supercharged environment of employees learning new ropes, processes and systems, and everyone is having to dealing with a higher level of scrutiny. There’s a new mindset required and a whole slew of financial and legal requirements to handle.

Companies that are facing an IPO should be prepared to:

• Get their financial house in order if they haven’t already.

• Ready their financial accounting and reporting for maximum valuation and for a new class of investors.

• Review the finance team’s skills sets and consider what new skills should be brought in to the fold, and when. You need someone who has been there, done that.

• Accept that “being” a public company is different than going public, and that in some ways, the real work begins after the actual IPO.

An IPO is a pivotal moment in a company’s lifecycle, and it helps to be as prepared as possible. It can also be a bumpy ride unless you have a navigational guide.

Don’t miss our one-hour online webinar on August 6 to dig into this meaty topic. Senior Consultant Diana Gilbert, who leads the Technical Accounting Group at RoseRyan, will be joined by Matthew Rossiter, Partner at Fenwick & West LLP, and Susan Berland, Consultant, Finance & Strategy, as they lay out the course for IPO-bound companies in “Smooth Sailing for a Successful IPO” at 1 p.m. PST. To register for this webinar for companies contemplating or going public, visit our registration page: http://bitly.com/ipoaug6.

Want even more? Get RoseRyan’s series of reports for IPO-bound companies: IPO in Your Future?, Ensuring a Smooth Ride as a Newly Public Company, and The IPO Journey: 6 Potential Obstacles to Avoid for a Smooth Trip.

/by
, , , , , , , ,

The 4 stages of the business lifecycle and how to recognize what you need next

Many companies tend to follow similar patterns as they adapt and change over time. The trajectory is known as the business lifecycle, and we’ve identified four particular stages that companies typically move through from beginning to maturity. Knowing where a company lies along the lifecycle is critical for truly understanding its current and future finance needs.

Like humans, businesses have a growth track they follow as well as a constant pull to reevaluate who they are and where they’re going. As companies grow from the small-business stage and expand and evolve into fully fledged ongoing enterprises, they have to adjust to increasing demands and the rapid pace of change around them. And they need to constantly reinvent themselves to stay competitive.

With all these points in mind, we constructed our view of the stages of the typical business lifecycle and the different finance challenges that occur at each stage. Is there a pressing need for a huge ramp-up? Could an IPO give the company the boost it needs, or will it remain private indefinitely? Companies go through existential crises all the time, from startups cobbling together basic funds and a tight team, to large public companies facing pressures at a global level. The lifecycle is a useful map for the potential future journey of a company, and can help evaluate whether the finance team’s resources can keep up with all the changes and demands.

Here is our take on the four stages of the business lifecycle:

Start: The first stage of growth involves balancing the fight for survival with getting the small business up and running. It’s just a few employees forming a solid team, gathering funds together and developing a sellable product at warp speed. Many startup companies haven’t gotten around to setting up their financial infrastructure yet. They may need to lean on outside sources before they bring on full-timers.

Grow: This is the time of building the business rapidly to scale. It’s all about managing high growth on this rollercoaster, and potentially chaotic financial messes. Many companies need to rapidly set into place new organized processes and systems to get their financial house in shape and ready for the prying eyes of investors, auditors and potential acquirers.

Expand: Here is when companies move on to a whole new strategy for growth and it usually involves a big transaction. They may buy another company, merge or go for an IPO. What’s missing at this stage at times is a plan for traveling through it and getting through the aftermath. Most companies underestimate the work and amount of change involved.

Evolve: At the fourth stage, the mark of maturity, ongoing businesses hit a barrage of change at every turn, from high pressure by competitors, investors and customers to unpredictable business crises. They frequently need to reinvent themselves to stay a winner.

What keeps companies in motion? It won’t surprise you to hear that I believe the success of any company rides a lot on the strength of its finance team. With a solid financial infrastructure in place and access to just the right talent at the right time, the company can keep humming and stay on top of all the requirements. By having a strong financial backbone, with efficient systems and processes, companies can focus on strategic changes that will push the business forward. Those are the ones best poised for success.

At RoseRyan, we reflect upon each client and where they are in the business lifecycle, to best anticipate what services they might need most. Companies appreciate our experience—having helped hundreds of companies through each stage—and trust us to get them through it quickly.

For more about how RoseRyan helps across the lifecycle, go here.

Kathy Ryan is the CEO and CFO of RoseRyan. Since co-founding the firm in 1993, she has served as interim CFO at more than 50 companies.

/by