In the start-up world, growth rate is usually the defining success factor. Artificial intelligence (AI) has enabled start-ups, especially those in the technology and software sectors, to accelerate strategic timelines and scale growth like never before. And with any race, the key to long-term victory is more like running a marathon than a sprint; start-up leaders need to pace themselves, keep an eye toward long-term sustainability and know when to call in a coach.
Here are five signs that it might be time to call the experts and get the financial and tax records in order before taking the next step.
1) When there’s no formal budget
One mistake new start-up teams tend to make is putting a hefty sum of money into the bank and then … simply spending it as they need to. This is a great way to waste valuable funding and lose potential opportunities for strategic capital investments or future investors. Many start-up founders are more “big picture” and less focused on the day-to-day (or even month-to-month) numbers, and that’s where it can help to bring in an outside accounting coach to organize the budget, perform cash flow projections, spot opportunities and potential risks and make the money work harder for the company.
2) When the CPA can’t do anything else with what’s there
Growth happens. And that’s a good thing! Often, start-ups will reach a point where they outgrow their first CPA; this is not uncommon. Many outstanding CPAs can help bring an idea to life, file the necessary paperwork and steer the company through its early stages of tax compliance. But after that point, the risk of continuing to work with someone who can’t do anything else with what they’re given is just too great. That’s not a knock on that relationship; not all CPAs and accountants are skilled at working with businesses as they grow – especially start-ups, where growth can sometimes happen very, very quickly.
3) When the start-up goes for funding, and they get laughed at
That’s not a good sign, right? Traditional capital from a bank or financial institution, venture capitalists, or angel investors all have one thing in common: they require fully vetted financial and tax records. A start-up simply cannot apply for significant funding without audited financial statements, verifiable metrics and benchmarks, a valuation and a solid business plan. Start-ups don’t typically have the kind of talent to oversee those initiatives on staff, so if VC funding (or any interest in raising capital) is on the horizon, call in outside help.
4) When new funding is approved
Winning the backing of VC investors is huge and means an immediate influx of millions of dollars for most start-ups. This is potentially life-changing and begins a period of rapid growth. And once that growth happens, buckle up! It’s a wild ride. Once funding is secured and capital is in place, the start-up's foundations must be able to scale up quickly. To keep the momentum going, anticipate what’s coming and stay focused on outcomes. It helps to have someone on the outside keeping an eye on the books and financial records.
Further, if an IPO might be in the company’s distant future, it’s better to have the financial ducks in a row early.
5) When business change is imperative
Start-ups are founded to address a singular problem or provide a core solution. When that mission has been accomplished, what’s next? Consumers’ needs and desires change, there are regulatory and compliance updates to stay on top of, the tech obviously changes and what was once a novel solution may become irrelevant. Whether the company is entering into a cycle of growth, transformation or transition, it pays to leverage the resources of outside help.
Outsourced accounting partners can also function as strategic advisors, which is something to consider … especially since around 50 of the S&P 500 will be replaced in the next 10 years unless listed companies reinvent themselves.
Get Help Sooner Than Later
The worst thing start-ups can do is nothing. The second worst thing is to wait. Partnering with an outside financial consultant will help steer start-up owners and their teams in the right direction and prepare them for what happens next, whatever that next step (or 10) may be. Whether you’re jogging, running or sprinting, find a coach who can help you reach your goals at the pace of your race.