partner and ask others what Finance can do to help provide them the right information at the right time to make the best decisions, the organization is able to scale much more effectively.
An important part of collaborating with others as partners is to enable other functions to be more self‐sufficient and you do this by teaching them about finance and by helping them learn how to make an effective business case. Most people won't be well‐versed in finance. Some people might even have a fear of finance, and they may think that they're not good with numbers. Your number one job with helping your company scale is to help people learn how to best think about the issues of investing, measuring, making data‐based decisions, and managing financial resources. By taking on the mindset of enabler, of teacher, or helper, the startup CFO can develop a stronger grasp of which systems are needed, where data has to live, what analytic support is required, what types of training are required, and how investments can be made for a greater impact. You should also embrace being taught. Asking questions of other areas to better understand their function and challenges will help make an effective partnership. An effective startup CFO should keep the collaborative “partner” model in mind as they build their team, their systems, and their processes. And strive to create an environment where there are no surprises.
Chapter 3 In the Beginning: Laying the CFO Foundation
The earliest days of the startup are a constant battle between doing things the “right way” and being scrappy. The CFO is going to face the same quandary many times, and for many decisions: do you go the fast, cheap, and easy route, or do you spend more money, take more time to weigh options, and socialize your decision with a lot of stakeholders so that you can create scalable data stores and processes?
During these first few months, you will face countless decisions every day and the choices you make will reverberate for years. A small example is keeping excellent Board meeting minutes. If you're a C‐corp, or even an S‐corp, you'll have to have Board meetings and you'll need to take minutes of the meeting. It's easy when you start out to not take it completely seriously since you might have three people on the Board and you might just log the date, time started and finished, people present, and the results of any votes. Not a big deal when you're starting out, but fast forward to a time when you're considering a financing, merger, acquisition, or being acquired. Now it's a different story because now every document will be scrutinized by lawyers for accuracy, thoroughness, and as a window into how you operate your business. During our early Return Path days, I needed to painfully reconstruct what was discussed at a number of our early Board meetings the week before the next one. And then go through signing each one before due diligence during a transaction. From then on I always took minutes during the meeting and filed and signed them right after, and kept them in a consistent place. I could have saved myself a lot of time and trouble if I had done it right when we started.
Every business will have unique processes that are critical to a strong foundation but there are a handful of areas that will be important for all businesses, like the Board minutes I mentioned and others such as:
File storage and management
Initial interest to closed sale (“interest to order”)
Order to cash
Chart of accounts
HR information system (HRIS)
Employee expense policy
Option grant policy and budget
Federal and state registrations
Sales tax
As a startup you will want to be as scrappy as you can be but you don't want to skimp on these key areas in Table 3.1.
Table 3.1 Key foundational tasks.
| Key foundational tasks | Definition |
|---|---|
| File storage and management | How you electronically store all of your important corporate documents, signed client documents, non‐disclosure agreements (NDAs), etc. It is a good idea to have a different process for your core corporate documents (Articles of Incorporation, Stock Purchase agreements, etc.), your company documents (leases, compliance filings, tax returns, etc.) and sales and business development agreements. |
| Interest to order | The journey of every contact and sales lead all the way to a closed deal. The most effective way of illustrating this is via a flowchart. The flowchart tracks a lead as it moves through the sales cycle eventually becoming an order. The flowchart will include all automations, like email triggers and alerts, and also include all manual touch points and process owners. This is helpful to understand all of the systems and databases and also highlight areas that are a source of likely data entry errors or bottlenecks in the process. |
| Order to cash | This process tracks what happens once a sale closes, all the way to collection. It can include how information gets sent to your financial system, customer provisioning, revenue recognition, deferred revenue tracking, and accounts receivable management. |
| Chart of accounts | Whatever accounting system you choose will have a default set of accounts that you use for bookkeeping. The only certain thing is that the default settings, at least for your Profit and Loss statement, will be wrong for your business. It is worth taking some time in the very beginning to think about what revenue and cost accounts you will want and how you want to categorize them. Keep in mind that your reporting requirements will be a helpful guide to the accounts and their structure. |
| HRIS (Human Resources information system) | Setting up your employee information, payroll, departments, and benefits correctly from day one. Most startup‐focused HRIS do a good job helping ensure you have all of the right information and stay compliant so they are worth the early investment. |
| Employee expense policy | Documenting allowable expenses and the process to submit, approve, and categorize is best done as early as possible |
| Option grant policy and budget | You generally want to have a clear and transparent option grant policy before ramping up your hiring. The option plan documentation and details are discussed later in Part 2, and you also want to have almost an algorithm that determines the grant amount depending on role and market compensation. |
| Federal and state registrations | Once you set up your company, you should make sure to make all the proper filings in any state you have an employee. You should also understand each state's (and some municipalities') requirements for fees, sales, and use taxes. |
| Sales tax | This is a complicated area that has become increasingly important to start correctly. Most financial systems have easy integrations with sales tax software that should make this relatively painless if you start early. The tough part is to know if and where you have to charge sales tax. |
I go into greater detail on each one of these tasks later in the book, but all of them have the same two characteristics: They're easy to do quickly and they're easy to ignore. Don't ignore them or you'll put your company in a difficult situation sometime down the road and create a mountain of work for yourself and your team trying to fix and/or re‐create later. One that is particularly important for you, as CFO, is to make sure you have a deep understanding of the entire journey of a customer, from initial contact
