High Alpha is a venture studio that conceives, launches, and scales next-generation enterprise cloud companies. We’re focused on helping our companies get to market and scale faster. Part of our model to help our companies move faster is to provide shared services in finance, HR, product, design, and marketing. In my role as VP Finance at High Alpha, I’m part of that shared services model and act as the first CFO for the companies we start.
To date, we’ve started eight businesses, and I’ve been fortunate to learn a great deal serving as the first CFO for six of them. That experience has afforded me a unique perspective and opportunity to understand firsthand the accounting and finance needs at the earliest stages for high-growth startups.
Most entrepreneurs don’t have the luxury of employing a CFO from day one. Instead, they spend valuable time and energy trying to figure out what minimum set of accounting and finance tools and processes they need in place to keep their business on track. At High Alpha, however, our shared services model provides these fundamental finance tools — plus the other valuable services noted above — and enables our studio companies to focus on the activities that build true value for their businesses: building the product, selling the product, and serving customers.
As you are working to figure out your own accounting and finance processes, I’d love to share some of my learnings so you’re able to spend more time on those key customer-focused activities too.
I’ll start with the basics — here are five essential things you should do after forming your company to get your finances in order:
- Open a Bank Account: Plenty of good, free options are available for startups. Look for a bank that provides free checking, has user-friendly online tools, and allows mobile check deposits. Consider adding a debit card to keep personal and business purchases separate. Obtaining a credit card at this stage will likely require a personal guarantee which may not be desirable for many entrepreneurs. Most of our companies work with Silicon Valley Bank as they really tailor their services to the tech sector.
- Sign Up for an Online Accounting System: There are a few inexpensive, easy-to-use options out there like Quickbooks Online and Xero. High Alpha companies start with Quickbooks Online.
- Find a Payroll Provider: Accounting systems will frequently offer this service (Quickbooks and Xero both do). Payroll is more than simply transferring money to your employees’ accounts on payday. You have to comply with a number of state and federal tax filings, and a good payroll provider can take that administrative work off your plate. Another option to consider is a professional employer organization (PEO). Many PEOs offer payroll and other back-office outsourcing.
- Find a Tax Preparation Expert: A good tax advisor will do more than simply prepare your business tax returns; he or she can offer valuable guidance throughout the year to help the sometimes painful tax preparation process go smoother, ensure you are compliant with laws, and take advantage of available deductions. If you’re a US company, look for a Certified Public Accountant (CPA) as they meet the standards established by the American Institute of Certified Public Accountants (AICPA). CPAs must pass an exam, meet work experience requirements, and meet continuing education requirements to remain an active CPA.
- Purchase Insurance: The type(s) of insurance you may need will vary based on your business, but at a minimum, businesses should have general liability insurance. A simple Google search for “purchase business insurance” will yield plenty of options.
You will be off to a good start following the steps above, but there are a couple more things you will want to get in order depending on your business.
- Capitalization Table (Cap Table): If you have an uncomplicated cap table with only a few shareholders and/or option holders, you can likely get by with just a spreadsheet for awhile. Otherwise, there are SaaS products that help you manage your cap table like eShares. Have no idea what a cap table is? Go here.
- Financial Model: You need at least a simple financial model to help you run your business and make informed decisions. Most entrepreneurs simply use a spreadsheet tool. We’ll have a lot more about financial models in a future blog post, so stay tuned!
Whether you’re investing your own money in your business or have taken investments from others, it’s your responsibility to maintain good financial records. Don’t be intimidated by the effort required to maintain them — Quickbooks and other available tools are user-friendly. And if you don’t have the time to keep your own records or don’t want to take the time to learn, there are plenty of financial professionals who can take on those tasks for you on a part-time basis.
Finally, remember that orderly financials will not earn you an investment, but unorganized financials can certainly derail one.