EisnerAmper Partner Amar Bhatkhande recently participated in a finance and accounting panel discussion during a virtual TiE Silicon Valley networking event designed to connect with the Silicon Valley chapters’ charter members. The panelists broadly outlined the major areas of focus for entrepreneurs in relation to the financing and accounting functions of their startups (see also, Entrepreneur Resource Hub). The discussion highlighted the differences between the key considerations for companies that are in the pre-revenue generation stage and for those that are in early stages of revenue generation.
- Amar Bhatkhande, Partner, EisnerAmper
- Kamal Anand, Board Member, TiE Silicon Valley
- Shivani Sopory, Partner, Venture Capital, KPMG
- Omesh Sharma, CFO, Mindvalley
Pre-Revenue/Seed Financed Phase
Entrepreneurs, regardless of their educational backgrounds, should invest time into understanding the fundamentals of financial statements. Having a thorough grasp of a company’s cash flows is essential. Getting an overview of the sources and uses of funds proves handy in creating a robust framework for estimating the future projections of a company with a greater degree of precision.
At the initial stages, a company may benefit from the cost savings derived by hiring a bookkeeper or an outsourced CFO instead of a full-time CFO. However, a company must continue to monitor its activities and seek timely assistance from external professionals for any non-routine transactions.
In-house payroll processing, for example, is a vital function that requires a significant investment of time and knowledge. Although it may result in an increased expenditure, it is strongly encouraged to utilize the facilities offered by external payroll service providers because they are well-equipped to deal with compliance issues. Since these payroll providers offer a comprehensive range of services, it is critical to assess their overall benefits rather than deciding solely on the processing cost per employee.
Additionally, it is crucial to keep comprehensive written records of a company’s “cap table,” for which a third-party equity-management solutions provider can be utilized.
Post-Revenue/Seed to Series A Phase
As a company grows and starts looking at raising external financing, it becomes essential for it to maintain a proper set of financial statements that are available for potential investors. A company should assess its requirements for a full-time in-house or external accounting team that is familiar with the industry in which it operates and has expertise in handling the complexities that arise with revenue generation.
It is worth having a discussion with investors regarding their expectations for an audited set of financial statements prior to signing the investment agreements. A company and investors may agree on opting for a compilation or review engagement for the time being and then progress to an audit at a later stage.
Key Takeaways for Early- and Mid-Stage Companies
- Consider the use of outsourced specialized service providers.
- Confirm revenue recognition is aligned with requirements of applicable GAAP framework.
- Seek the appropriate experts for tax planning and legal compliance.