Top 10 Financial Must-Do’s for Every Early Stage Start-Up (And When You Should Do Them)
All start-up founders have their sights set on the same common goal: securing funding. In the early years, there is a temptation to skimp on the non-value added expenditures when you’re just trying to stay afloat. While in the short-term this may feel like the “right choice,” oftentimes the consequences will come back to haunt you tenfold. In today’s competitive market, you shouldn’t give potential investors any reason to think you or your company are ill-prepared. Taking the necessary steps now will place you at a competitive advantage over others seeking the same funding.
Here are the top 10 financial must-do’s for every early stage start-up and when it should be done:
When to do this: As soon as you’ve decided to take the plunge to start out on your own.
Lawyers should be involved as soon as possible and maintain their involvement throughout your start-up’s early stages. They will be able to evaluate non-compete agreements, draft operating agreements and bylaws, as well as offer their consultation when bringing in a new partner or executive. In particular for tech start-ups, lawyers must become involved so that you can protect your intellectual property.
When to do this: As soon as you hire your first employee.
Navigating ever-changing employment taxes is not for the faint-hearted. Leave this to the professionals so that you can focus on building your brand.
When to do this: Depending on transaction volume, within the first 12 to 18 months.
Even if they visit semi-monthly, securing an affordable bookkeeper now will save you hours come year end. Organization is half the battle. At a minimum, you will be able to readily see cash, sales, and expense reports in just a few clicks.
When to do this: Within your first year of operating your business.
A good CPA is like a secret weapon. They can help navigate the murky waters of tax and accounting. Tap into their network and expertise. The right CPA firm will have vast experience and established experts in your industry.
When to do this: Monthly.
In today’s work culture, the line between business and personal is a fuzzy one. Many entrepreneurs don’t give it a second thought when swiping their personal credit card for their business. Depending on how your company is formed, these personal expenses on behalf of the company are treated differently. Know how this impacts your company, and be careful not to jeopardize its entity status. Set up a separate bank account and credit card and avoid mixing the two.
When to do this: Should be re-evaluated periodically, at least annually.
Location, location, location. Hiring that developer that works from their Boston studio apartment could open you up to all sorts of state nexus issues. Similarly, renting temporary office space in the five boroughs may open your company up to the NYC MTA or UBT tax. Consult with your CPA before making expansion decisions.
When to do this: Once a year.
What’s the end game? It’s okay if it changes a thousand times over, but have a plan. All too often we see profitable companies that may think they are ready to be acquired, but when you take a more thorough look, there are various potential liabilities that deter buyers.
When to do this: As needed, at least once a year.
Consulting your team of service providers and advisors is crucial before undertaking any major investments. We oftentimes see co-founders “in over their heads,” whether it’s in regard to a commitment they made, or a purchase they incurred. Had the team been involved from the onset, they could have offered an alternative approach to a sticky situation.
When to do this: Monthly.
It is easy to get wrapped up in the day-to-day, but having a budget and comparing it against your actual expenses will keep you organized and help to avoid feeling overwhelmed.
When to do this: ALWAYS!
Admittedly, this isn’t a financial must-do, but enjoy the ride. The early stages are an adventure to say the least, but knowing what to do and when will make you better prepared to face the unexpected.
Written by: Alyson Caligure, CPA, MST, Supervisor