How to choose the best exit strategy for your business?
Every entrepreneur has one target in mind when starting their business, to grow and to be profitable in the long run. Many entrepreneurs start a business to multiply its and other stakeholders’ investment. It has been more common lately to see a company go thru an IPO or acquisition as an exit strategy. This blog will discuss how to choose the best exit strategy for your business.
As discussed in our blog, starting a successful business in an inflated economy, you have the opportunity to create innovative products or services to solve a problem that arises during hardship times. As an entrepreneur, you have the power to influence and change the current ecosystem by building a great startup. So why think about an exit?
Reasons why an exit strategy is needed
Many factors can contribute to an exit:
The business has been running at a loss for a while now
Legal reasons such as massive lawsuits
The demise of the owner (usually sole proprietorship)
Merger & Acquisition looks appealing
IPO to multiply investors’ money
What makes an exit a bad strategy?
A lousy exit usually involves poor strategy adaption. When a business owner decides to halt the business, choosing the right exit strategy is vital. Poor strategy management may cause financial losses and even steer the business brand away from its values. Business owners can choose the suitable method based on the business needs; every element of the strategy implementation is essential for a smooth exit process and optimizing business outcomes.
Most common exit strategies
There are a few exit strategies that we will discuss here. The most common ones are:
Transferring the business to another family member or a neutral person
Merger and Acquisition
Business liquidation
Bankruptcy filing
Selling the company to a partner or an interested investor
IPO (Initial Public Offering)
Exit Strategy 1: Transfer the business to a family member
Why choose this exit strategy?
As a business owner if you decide to retire, one of the most common ways to exit the business is by transferring to a family member. Business owners like this exit strategy as they are able to keep the business with family and pass it on from generation to generations to come.
Factors to consider when exiting this way.
It is prevalent to inherit a business from a family member. Usually, this type of business is more mature and established in the economy. The transferee should evaluate some factors before beginning the transfer. First of all, the soundness of the acquiring party. It is crucial to ensure the new owner has the mental and financial ability to take over the business and sustain its values and profitability. It can often become a challenge for both parties to have the same business practices mindset. Both parties should try to reach a common ground where the transfer can be done smoothly while ensuring the legal aspect of the transfer has been taken care of.
Exit strategy 2: Mergers & Acquisitions (M&A)
Why choose this exit strategy?
This M&A strategy is most common among startups and business owners. It can be a preferred strategy as the owner can set their terms, continue to hold control, and influence the price of the acquisition.
Factors to consider when exiting this way.
There are two outcomes from this type of transaction: either businesses merge and maintain equal interestand holdings, or the acquiring party becomes the major stakeholder of the merged entities. When the latter happens, the appointed CEO will be from the acquiring side, and significant changes can be made to the structure and processes of the other company. This strategy requires internal and external expertise to complete each transaction area and weigh the outcome of such activity. Some of the crucial part that will decide whether to continue with the strategy is the projected profitability, the size of the debt, and any ongoing legal issues that might fail the purpose of the M&A transaction. More on this topic soon!
Exit strategy 3: Business Liquidation
Why choose this exit strategy?
Business owners are ready to liquidate their business and move to the next venture. This may sound very appealing to a business owner if the passion for the business is lost. If the entrepreneur does not have any family members or partners to sell the business to, then liquidating the business is the preferred stategy to exit.
Factors to consider with this exit strategy.
It may sound simple and easy, but it is critical to inspect and ensure you create a proper checklist for each business area. Liquidating a business translates to permanently shutting down the business, so it is essential to ensure the business values and brands stay positive in the market and that such a decision will be profitable. Business owners often seek external services to help analyze and compile the necessary data to adapt the exit strategy successfully.
Exit Strategy 4: Bankruptcy Filing
Why choose this exit strategy?
Almost all business owner tries to avoid this type of exit. Filing for bankruptcy often relates to the inability to sustain the business profitably while the level of unpaid debt is snowballing. To avoid being sued or the possibility of losing not only business but personal assets, many owners’ resorts to this avenue. It takes a thorough process to qualify for the filing.
Factors to consider with this exit strategy.
Business owners should weigh the outcome and the consequences so that it will appear beneficial for choosing this exit strategy. We recommend seeking professional services to advise and assist in consolidating the business for filing purposes.
Exit Strategy 5: Selling the business to a partner or investor.
Why choose this exit strategy?
The exit strategy above is pervasive, especially among startups and small businesses. For example, many small entrepreneurs create business pages on social media such as Facebook to market their products and services. In time, the pages might have gathered a large number of followers, which might pique others’ interest in buying over the page with the acquired followers. It is easy for an interested investor to market their business with an established page with more significant followers by just changing the page’s name and other details while maintaining visitors’ traffic.
Factors to consider with this exit strategy.
Suppose business owners wish to sell their business, especially the ones with established brands. In that case, they should carefully review the circumstances and potential loss of future profit by analyzing the company’s value at the time of the sale.
Sometimes, it will include a royalty income in the sale agreement. There are many angles to be looked into before effecting any deal to achieve the best outcome.
Exit Strategy 6: Initial Public Offering (IPO)
Why choose this exit strategy?
An Initial Public Offering (IPO) is also a desirable exit strategy for entrepreneurs and investors. This exit strategy can substantially multiply the investment of private investors and business owners, making it very desirable.
Factors to consider with this exit strategy
Many factors can affect an IPO, such as market conditions can influence how profitable this exit strategy can be. Other reasons companies go for IPO include brand strength, liquidity, company success, and improved market valuation. We will write more on this strategy next week.
How can Startup Tandem help you?
As a business owner, you should partner up with a team that can help you choose the best exit strategy for your business and support you in the process that comes with it. All of these exit strategies need finance advisory and legal support.
The advisory team at Startup Tandem is available to help you prepare your company to achieve the desired exit. Startup Tandem advisory can help you value your company by using the discounted cash flow or LBO model and provide advice on any transaction to achieve the best exit possible for you and your investors.
Startup Tandem has developed a network of businesses and individuals that come together to help startups and small businesses. Reach out if you need referrals or if you need to discuss any of these exit strategies more in depth.
Avoid expensive employee turnover by improving your hiring practice
As a small business owner, you may not have a human resource department to guide you through the best recruitment, hiring, and retention practices. The process of recruiting for the same position comes with a significant cost attached to it. This blog will discuss steps to improve your hiring practices as a business owner. Avoid expensive employee turnover by improving your hiring process thru these steps below.
Avoid Expensive Employee Turnover
Human Capital is the Greatest Asset.
It does not matter what industry you are doing business in, retaining human capital is the most valuable asset in an organization. Employees are either interacting with customers directly or indirectly when creating products. Therefore, hiring the best candidate is the first step to avoiding the expensive costs that come with employee turnover.
Employee turnover can get expensive
During the replacement process of an employee, a business loses time and a tremendous amount of money. The Society for Human Resource Management (SHRM) reported that “on average, it costs a company six to nine months of an employee’s salary to replace [them]. Let’s consider an employee making $60,000 annually; replacement fees come to $30,000 – $45,000 in recruiting and training costs.”
You may have many reasons to let go of an employee or for them to quit. Still, hiring the right person aligned with your company’s culture and values is the most important thing you can do as an employer to avoid attrition.
Hire and build a diverse team
You should aim to attract a diverse talent of individuals. Companies that have diverse teams are proven to be more successful at making better decisions as everyone has different problem-solving skills and resources. If you build a diverse team, you will also be able to connect with different types of customers. Diversity is the way to go when building a successful organization!
Step 1: Culture, Culture, Culture (and Values)
Of course, you want to make your culture attractive to recruit the best of the best. But you also need to hire people who will be a great cultural fit for the company. Determine the motivation for each prospective employee and see if it aligns with the company’s values (E.g., Here at ABC company, we want people who want to grow and learn).
Step 2: Hire for personality, train for skill
The most successful companies understand that you can’t change personality (a soft or “power” skill). They are forgiving about not having “hard” skills because they realize most people can quickly learn these skills with the proper training. Southwest Airlines coined the term “hire for personality, train for skill” and has done just that for years (Baker, 2014). Trader Joe’s is known to hire for “personality, specifically extroversion” (Ager & Roberto, 2014). Both these companies see that retaining employees with a great culture and training is cheaper in the long run than hiring people who later leave or get terminated. Attracting the “right” people is paramount.
Step 3: Cross your T’s and Dot your I’s
Do good work at both the attracting and deciding phases. Do not skip any of these steps just because you like a candidate.
Interview Process:
Ask questions about competencies/knowledge, skills, and abilities (KSAs) needed to succeed in the specific position.
Ask questions about a prospective employee’s personality, vision, mission, values, and culture.
Ask, “Why this specific company?” This question will immediately let you know if they’ve done their research.
Ask, “why remote/hybrid/in office?
Ask, “Why this specific industry?”
Ask both behavioral and situational questions. “Behavioral… focuses on a candidate’s past experiences, behaviors, knowledge, skills, and abilities by asking the candidate to provide specific examples of when they have demonstrated certain behaviors or skills to predict future behavior and performance. Situational questions give the interviewee a hypothetical scenario and focus on a candidate’s past experiences, behaviors, knowledge, skills, and abilities by asking the candidate to provide specific examples of how the candidate would respond given the situation described.” (SHRM, 2022).
Ask for completion of a valid personality test such as the Caliper.
Ask for consent to a background check (criminal, civil, degree confirmation, license confirmation, etc.)
Ask for three professional references and call all of them even if they provide a letter of recommendation. Some people will tell you things verbally they would never write in a letter.
Offer a limited window to sign an offer letter and employee agreements but offer support and be available/approachable for questions and negotiations. This creates a sense of urgency and lets you snag that desirable candidate.
Step 4: Create a hiring matrix
This technique has come very usefully for the Startup Tandem team. This matrix should have the following factors:
Decision criteria can be such as ‘professionalism, skillset’ in certain area etc.
Weight assigned to each criterion ex: 25%,50%
Rating per criteria ex: 5,4,3
multiply weight and rating to get the score per criteria
Comments per interviewer
Stay Compliant
Be sure to file a new hire report in your state. This determines if the new employee owes money to the government (e.g. child support). If they do owe money, the court or government agencies will mail you information on how much to deduct from their paychecks so your employee can pay back their debt. In California, for example, if the employee will be paid over $600, the form needs to be filed within 20 days via Form W-4 (form will vary by state) or you will face late penalties.
As they change, follow all state and federal anti-discrimination laws every time you hire an employee. For example, “California law protects individuals from illegal discrimination by employers based on the following: Race, color. Ancestry, national origin. Religion, creed.” CA Civil Rights Dept. Report all employees’ data annually to the Equal Employment Opportunity Commission (EEOC). This is not something you do upon hire, but rather by the annual deadline. You will find the reporting dates on our Startup Tandem HR Compliance Calendar. The last one was May 17, 2022, but they often get extended.
What to do next?
As a founder, CEO, and owner of your own company, you should allocate time to developing a correct hiring process that is aligned with the values of your company. developing these processes will avoid expensive turnover. There are compliance policies that you should keep in mind when hiring, which can become challenging to navigate. A partner like Startup Tandem can help you set up such processes and build a budget for retaining valuable human capital.
If you follow these simple steps, you can hire the right person who will strengthen your culture for years to come. Although it may take more time and energy than your current hiring process, this is an opportunity to cut those tremendous turnover costs. Ideally, you will lose very few employees over the years.
Stay compliant with each state where you have employees
Setting up Retirement and health plans for employees
Startup Tandem HR consulting is led by a phycologist that can help you create the questions and tests to hire the rightest candidate for your company’s culture.
Startup Tandem CFO can help you create a budget that includes expenses such as software to run a background check, personality, conflict management, and leadership tests. Your budget should also include training and retaining human capital. Following hiring the best people for your company comes retaining your employees. We should also help you track your actual versus your forecasted expenses in the budget to stay on top of your cash flow.
Now that we discussed how to avoid expensive employee turnover by improving your hiring process, you can learn how employees like to feel appreciated by their boss. Everyone has a different way of feeling appreciated by their boss. Our blog Unique Ways to Optimize Retention, Engagement, Productivity – Startup Tandem, will give you some insight on how to increase retention. More on this topic soon! Sign up for our newsletter to receive blogs directly to your email.
References
Ager, D. & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School Publishing.
Baker, W. (2014). Southwest Airlines’ Nonstop Culture: Flying High With Transparency and Empowerment. HBS No. W94C04. Boston, MA: Harvard Business School Publishing.
I Am A New Business Owner- Will My Business Survive?
If you are a new business owner and you are wondering will my business survive the current economy – you’re like may entrepreneurs in 2022. Read on to learn some important information on the current economy and whether or not your business will survive.
We’re In This Together
I believe many can resonate with the statement above, especially those just starting in the entrepreneurship world. Starting a new business requires time, funding, materials, and most importantly professional help to ease the initial stage processes. Many are experiencing difficulties in sustaining their business in the current economic situation due to high-interest rates and inflation which directly have caused lesser economic activities. There are a few important aspects that any business owner should take into consideration to prepare for future setbacks if any.
Cyclical Vs Non-Cyclical Industries
1-Choosing the right industry is crucial because most of it moves with the economic trend. For example, the construction industry is a cyclical industry that will move in tandem with the market movement. Due to high inflation and rising interest rates, the construction industry is heavily impacted by the rising cost and lower demand for new projects. The non-cyclical industry is impacted much lesser compared to the cyclical industry as the need for this type of services or goods are sought after regardless of the market condition, like staple food.
Economic impact on lifestyle choices
2- Understanding the current lifestyle of the mass, sometimes trends do fade away after time and it is difficult to survive this if a business doesn’t evolve and adapt to the changes. A while ago, healthy meal box was in trend and it’s fading away due to the current economic condition, people are being more conscious of their spending as the inflation rate is on the rise. The size of the business does play a huge role in its sustainability especially when everything is priced at an all-time high compared to 5 years ago. Business finance capability is very important to survive the current price war.
Finance Capacity
3-Internally an entrepreneur needs to understand the financial status of the company. Having a thorough business process is vital to keep surviving when the situation is not favorable for the profitability of the business. Addressing the entries on the financial statement which might be impacted by the current condition might mitigate the risk of operating losses and allow one to plan accordingly for future business activities like acquiring funding from lending entities or raising private equities. Obtaining professional services like hiring a fractional CFO to revamp the business strategy, perform financial analysis and forecasting and for other crucial areas of the business might save time and generate the desired outcome for the sustainability of the business.
Local Resources
4-Usually, start-ups in a certain industry might get the right resources and assistance from the local state or county during an economic downturn especially entrepreneurs from a specific demographic group. Being on the lookout and updated on the current resources that might guide and assist the business to stay in operation during uncertainties will certainly be useful for small business owners. Subscribing to an insurance plan which safeguards the business operation might also be an important aspect to investigate. Above all, understanding your business and how it can be impacted by little changes by external factors from the beginning is the most important part of swiftly moving beyond the market cycle. As an entrepreneur, our goal is to stay active and generate profitability. Having that in mind, one should look ahead, keep evolving and stay composed when things go sideways. The right mindset and anticipation are vital to gracefully move forward at the desired pace, especially for those who are at the initial stage of a business.
How can we help your business during this time of uncertainty?
In a nutshell, choosing and understanding the industry, adding professional help, comprehensive knowledge of the business financials and analysis, keeping up to date with the latest resources from local state or county and the right mindset are the keys to sustaining a business in a current economic condition. Adapting and evolving with the changes often results in a positive outcome.
For more guidance and professional advice, visit www.startuptandem.com. Startup Tandem provides fractional CFOs services to help entrepreneurs mitigate risks, maintain cash flow, and find capital opportunities during vulnerable times like now. Our prices will adjust to your current business growth and budget.
If You’re Wondering Do I Need A Bookkeeper If I Have Quickbooks – Please Read!
You may be asking yourself- do I need a bookkeeper if I have quickbooks. This post will go into everything and answer your question of whether or not you need a bookkeeper if you have bookkeeping software (like Quickbooks) that you manage on your own.
Why Every Startup Should Have a Bookkeeper(Even if You Have Quickbooks)
Developed by the popular financial software company Inuit, Quickbooks is an accounting software package designed for small businesses in mind. This software can help business owners who have no experience in accounting or bookkeeping, and who need professional assistance in categorizing expenses, payroll functions, paying bills, and managing payments. Quickbooks is a highly automated software built for an introduction into the world of financial management for business owners.
An entry level step into accounting and bookkeeping, Quickbooks can be a useful tool for business owners but is no good on its own. Quickbooks works best when paired with a bookkeeper who can help guide and explain things to you. Below are several disadvantages of using solely Quickbooks as your only source of financial tracking within your business.
Quickbooks is an entry level solution for small to medium sized business owners who have little to no idea what they are doing. However, if you are looking for a personalized option to scale your business even further, using only Quickbooks is probably not the best plan for you. There are advantages to Quickbooks: it’s an affordable option and easy to use. If you are looking for the best financial decision for your business, however, you will need a bookkeeper too. When used alone as a primary way to organize and track your financial data, Quickbooks has some disadvantages. These may include:
Limited business features which do include functions such as HR management, lot tracking, barcode scanning, and eCommerce.
Pricey options for add-ons which can dramatically increase the cost of Quickbooks by up to six times the amount of the basic plan. Some of these expensive add ons include features like automated data backups, multiple users, management charts, customized reporting, and automated approvals.
Random site crashes and sometimes sluggish site due to a limited number of users and file sizes that are admitted on the site. This can be a huge problem for you and your business, especially if you are working on a large and important transaction.
No backup or cloud to recover from mistakes which is a necessity these days in the world of technology. Did you accidentally enter data in the incorrect account? Imported multiple transactions to the wrong place? If using Quickbooks, mistakes big and small are permanent and not retractable.
Customer service which guides users to online forums to help answer concerns or questions instead of customer service specialists. Quickbooks prefers users to find answers from other users instead of assisting directly.
Easily manipulated data which, while made easier for you to fix errors and mistakes, makes it even simpler for someone with malicious intention to ruin your precious data.
The above disadvantages can be solved with the help of a professionally trained bookkeeper who can keep track of all your financial expenses and can even help manage your Quickbooks account. Using both a bookkeeper and the Quickbooks software can put you at an advantage over other business owners who lose money through poor financial tracking.
Bookkeeping keeps a record of all financial transactions within your business. Additionally, proper bookkeeping is required to be able to correctly file your taxes each year. Filing your taxes as a business owner is not a matter to take lightly.
Bookkeeping is not to be confused with accounting, which uses the information bookkeepers give to determine a business owner’s financial state and can help with tax returns, independent audits, and certified financial statements.
In comparison, bookkeepers manage your financial data and record financial information. This information is crucial as it is a big part of being aware of your transactions, cash flow, and additional financial matters which are a major part of your business.
The answer is simple, and it depends on if you are willing to take the risk of losing money for your business every year. While Quickbooks can be a beginner-friendly way to dip your toes into the world of accounting for your business, it is not the wisest financial decision when used alone and without guidance.
Quickbooks relies on its users to never make mistakes, and this is where a hired bookkeeper can come in handy. Most business owners are not built in bookkeepers and are not aware of the many rules surrounding every entry made. There is rarely a straightforward answer when working as a bookkeeper. That is why it is so much more efficient to work with someone who is trained and can help you jump through all the hoops. Reasons you should hire a bookkeeper even if you have Quickbooks:
Bookkeepers Increase Financial Accuracy in Your Business
Quickbooks Does Not Catch Errors That Bookkeepers Can
Bookkeepers Save Wasted Time That Could Be Used For Your Business
There Is Lower Risk Involved in Hiring a Bookkeeper vs. Relying on Quickbooks or Employees
Financial Reports Are More Easily Understood and Presented
Filing Taxes is Easier
Bookkeepers Increase Financial Accuracy In Your Business
While technology is an amazing tool that is helpful for businesses in many ways, it is not always the most accurate. This is especially true for working with your financial transactions and recordkeeping online. Quickbooks doesn’t see your business from the inside out; it is online aware of what you are inputting. Working with a bookkeeper gives you an advantage of ensuring your entries are correct and accurate. Without accurate tracking, you could be seriously risking expensive fines and penalties with your tax return.
The last thing you want to be doing is struggling during tax season. Not only does having a bookkeeper help you become more organized as a business, but it also helps you have less stress surrounding your finances, too!
Quickbooks Does Not Catch Errors That Bookkeepers Can
Quickbook does not have the ability to detect any errors or mistakes you may have accidentally made. This is where your bookkeeper can really make a difference in your business. Imagine listing an entry incorrectly and having to deal with the consequences down the road. No one wants to find out they owe more than they do be fined ridiculous amounts of money.
Use Quickbooks and also have a bookkeeper on hand to look through your accounts and entries. Your bookkeeper can monitor your accounts and ensure that all entries and transactions are accurately made.
Bookkeepers Save Wasted Time That Could Be Used For Your Business
You own a business and strive to make it a success. Why spend hours record keeping and financial planning when you could be spending your time and energy on your business? Time is more valuable than money and you could be using the time focused on bookkeeping to grow and scale your business instead.
Spend more time doing what you enjoy, and less time stressing about the record keeping portion of your business.
financial and accounting services
There is Lower Risk Involved in Hiring a Bookkeeper vs. Relying on Quickbooks or Employees
Have you thought about using one of your employees to manage bookkeeping? Not a good idea, as it is much more likely for a signed on employee to commit fraudulent activity than a bookkeeper within a company. Hiring someone from the outside who has been screened by their company is a much lower risk than hiring from within.
If in the unfortunate event that a bookkeeper does commit fraud, there is a company behind them that is able to retain the losses and compensate you accordingly.
Financial Reports Are More Easily Understood and Presented
While Quickbooks has a great feature which organizes and presents your data, most business owners don’t know what to do with the data that is shown. What does it mean for their company? How should they use this information? An understanding of all of the data and how it is shown in the presentation is necessary for reading the report accurately and successfully. Bookkeepers are much more helpful in this regard as they can read the report with accuracy and present it in a way that not only makes sense to you, but to potential investors and shareholders as well.
Filing Taxes is Easier
As stated earlier, taxes are an integral part of your business and are a major aspect of your business. If filed incorrectly, there are costly penalties and fines that can set your business back.
Quickbooks works alongside TurboTax to file your taxes, which can make it easier to file your taxes as a business owner. However, if you want peace of mind, hire a bookkeeper to keep all of your finances in line. The more complicated your tax information is, the higher chance of errors during tax season. A financial expert such as a bookkeeper keeps things running smoothly for you. An automated software like Quickbooks can never compare to someone professionally trained with the books.
Quickbooks vs. a Bookkeeper
Quickbooks can do the basics for your business but at times when used alone is not user friendly. With Quickbooks you can:
Store and analyze data
Pay invoices
Generate reports
Prepare taxes
Keep track of recordkeeping
Use double entry accounting feature
This is all great information to have, but with Quickbooks, it is just that; information. There is no one to guide you through the process or explain to you what your reports mean or how you should enter your business expenses. With the help of a bookkeeper you can have access to all of the information above, but with the added assistance of having someone give you financial advice and explain what is going on with your finances.
Bookkeepers are capable of everything that Quickbooks does and more. Not only can they accomplish all that is listed above, there is the personalized component that Quickbooks does not have available for business owners. Your personal bookkeeper knows the ins and outs of your business, what goals you have, all of your expenses, personal and professional. They are aware of all financial transactions occurring and the cash flow within your business. With Quickbooks, the software relies on you to do a decent job of acting as bookkeeping without the training.
At first, Quickbooks alone might seem attractive to the small business owner with its affordable prices. However, sooner rather than later the features that Quickbooks has as add-ons will add to your expenses and dramatically increase what you pay monthly. Why only choose an automated software such as Quickbooks when you could also use the help of a professional with years of experience?
Why You Need a Bookkeeper Even if You Have Quickbooks!
It may be tempting as a small business owner to DIY it all and avoid paying for a bookkeeper. However, only using Quickbooks can actually put you and your business at more of a financial strain. With expensive add-on features that can multiply the cost of their software up to six times as much, using only Quickbooks would do more harm than good for your business. Instead, limit your use of Quickbooks and use a bookkeeper to keep track of everything going on within the walls of your growing business.
Technology is evolving which can be fantastic for new business owners. However, why only choose software over a trained bookkeeper when it comes to the biggest part of your business: finances! Allow a trained professional to take over your transactions to let you focus on your business instead. It is my hope this post convinced you on why you need a bookkeeper even if you have Quickbooks!
Hire Startup Tandem For Accounting And Bookkeeping Services
Hire Startup Tandem for your accounting and bookkeeping services we have locations in LA and Delaware. Please take a look at our locations below and contact us if you have questions on our services!
Should Every Startup Invest in Financial Services?
“No matter how brilliant your mind or strategy, if you’re playing a solo game, you’ll always lose out to a team.” This quote by Reid Hoffman exactly pin-points why Startup companies need to invest in financial services.
Not sure if you are a “startup” or a “small business”? Well if you are a company that is intent on growing as fast as you can then you are most likely a “startup”. Still, there is significant risk in growing your company by playing ball hard and fast. You lose time, need to keep investors and banks happy, and create a financial plan for your future.
should every startup invest in financial services?
There are so many things to juggle when it comes to running a company. Budgeting can be hard and not everyone has a talent with numbers. Being in the red can be scary. Some decide to outsource, while others choose to go ahead and take on this task themselves. So the question remains: should every startup invest in financial services?
More On Financial Services As A Business Investment
Financial Planning
So first let’s define “Financial Planning”. This is where you make a plan, or guide, to show how your money and other assets will help you meet your money goals. When you are running a startup company, you want to make sure all of those financial needs are being met. Fundamentally, some startups are more profitable than others. However, the formula and theory is essentially the same.
This is where hiring a certified accountant can help you. Certified accountants are trained to look at your business costs and project how to help your company grow in the best way possible. Financial analysis may, also, not be your strong suit. Outsourcing to your financial team can help make sure all your ducks are in a row, especially when it comes to things like loans or investors.
Building a financial strategy can help your accountant understand exactly what you need. This way, too, you can take your current situation astride. Depending on whether you are post or pre-funding your financial strategy and planning may shift.
Doing It All Yourself
While doing it yourself could save you some money, in the long run it may be more trouble than it is worth. As the head of your company, you have so many other items on your “To DO” list. Finances and number crunching can take time, and there is room for error. Knowing how to delegate those financial tasks to trained employees or third party sources can help you save time. And you know what they say, “Time is Money”.
There are many difficult risks to creating a startup company. Some of these can be
Bankruptcy
Financial
Economic
Risk of the unknown
Theft
Funding
By investing in a third-party financial service, you are reducing those risks. They can help you create a financial forecast and even a budget to help keep an eye on your day to day operations. Reports can be created to keep banks and investors happy. Financial data can be translated in a way that helps you understand exactly what you are looking at.
By outsourcing and investing in financial services you can reduce theft to your company as well. Financial services are there to make sure an ear is always on the heartbeat of your company.
Other Things They Can Do for You
Still not convinced? Here are a few more items that a financial service can help you navigate:
Creating the financial foundation for your rapidly growing company.
Key Milestones
All of these items are instrumental to making sure your company grows smoothly and without tons of risk. They can help you create a budget that will allow for all these items to be made a reality. Either way, it’s probably a good idea to speak to either an accountant and or a bank manager. They will know best how to guide you.
How Startup Tandem Can Help
If you’re reading this blog post, you may be wondering if your startup should begin to invest in financial services. Perhaps you have a business that has taken off and you need an expert to help you scale. Or perhaps you’re not quite where you need to be. Maybe you are burning a hole in your wallet and are feeling the affect of not having a strong financial backing.
Whatever the case may be, Startup Tandem works with businesses in every stage of development. We provide affordable solutions and meet clients where they are at. You can learn more about our service packages here.
Learn more about Startup Tandem and how it works. Give us a call at your convenience for a free consultation on services. We look forward to making you our future financial partner!
best financial services for startups
Conclusion: Should Every Startup Invest In Financial Services
Startup companies grow at neck breaking speeds. Their entrepreneurial owners have a lot on their plates in order to keep the company growing at a steady, yet fast pace. Investing in financial services such as a certified accountant can calm some of those choppy waters.
The financial services can allow entrepreneurs more time to dedicate to the actual running of their companies. They don’t have to worry about managing cash-flow, payroll solutions, financial analysis or other accounting issues. It also allows entrepreneurs to sit down with a professional and create financial plans and projections for their future.
Still, every entrepreneur and startup is different. Some people feel more comfortable starting off doing the finances for themselves with a third party bookkeeper. If this is the route you choose, maybe consider investing in a financial service down the road. It may be worth it.
If you’re like many startup owners and entrepreneurs who ask, “When is a good time to hire a CFO?” this post will explain everything you need to know on the topic. Read along as we discover the benefits of hiring a CFO sooner rather than later.
You can also watch our video below as the founder of Startup Tandem discusses some basics related to the topic!
Do I REALLY Need To Hire A CFO Right Now??
If you’re wondering when is a good time to hire a CFO, this post will walk you through everything on the subject. So maybe you recently quit your job to start a business. Or maybe you are a business owner who’s been doing everything on your own. This article will explain when to hire a CFO and the benefits in doing so!
PRO TIP: Once you decide the time is right to hire a chief financial officer, you’re going to wonder how to find one that is the best fit for your company. You can read this blog post to learn how to hire a CFO too!
when should I hire a CFO?
Managing Startup Finances Can Be Super Stressful!
Dealing with the finances of your business can be a major source of anxiety for small businesses and those who are just starting out. However, while managing your finances alone might be an easy thing to do within the first years of your business, it can quickly spiral out of control and leave you with a headache. In order to avoid this, you need a CFO, but when should you hire one?
PRO TIP: Read this amazing article to learn how much does a CPA cost? We know it will be super helpful!
Hiring A CFO Right Away Is A Great Decision!
You should hire a CFO as soon as your business allows, which for most small startups is whenever you have raised around 500K through fundraising. This is a good amount that just isn’t manageable for you to handle alone, and since you are already going to be attracting investors at this point, a CFO is going to be able to help you handle everything.
Outsourced CFO
When Revenue Increases
If your revenue increases to over a million dollars, then you also need to invest some of that money into a CFO for yourself. You will need to not just take in this cash with your business, but also be able to manage it and ensure that you can hit your business milestones and also make sure that you are working within a strong financial model.
Additionally, while bringing on new clients can be a very lucrative thing for small businesses, sometimes they don’t know exactly how much it will cost to work with them full time. If your service costs money on your end, then a CFO will be able to see how much it costs every time you add a new client to your network. Then they can help you balance the books and possibly charge more in order to make up for the lost cost.
Scaling Will Be Easier
Having a CFO will also help you as your business scales up, because you will need to examine where your business is going and how you can ensure your business can handle the rapid growth you are going to put it through. Since a CFO is so important, and will help you in nearly every single stage of your business, then it might help you to know exactly what a CFO is.
Some Basics About Hiring A CFO For Your Startup
What Is A CFO?
A Chief Financial Officer is the person who is in charge of the money and fiscal side of your business. They work with your existing accounting and finance team (or build one if your business doesn’t have one), focuses on the revenue and expenses of your business, works to get outside funding, and is the primary point of communication with banks, your board of directors, and you as the CEO of your company.
CFO’s are the experts in all things money, and you will need to hire one once your business grows to a level of income that can’t be handled alone. Having an expert on your side will mean that you will be able to avoid any problems that can occur as you are growing your business, and they will be your sounding board when it comes to anything involving money.
While things like fundraising and marketing and growing your business might seem like easy boxes to check off for a budding entrepreneur, they can come with questions and pitfalls that most business owners just don’t know about. Thankfully, your CFO will have that knowledge and will make sure to ask you those questions. That way, everyone will be able to watch the company scale financially, without experiencing any problems.
PRO TIP: Read this article to learn how to choose accounting services for your small business. You can also read this post about hiring a part-time CFO and how to go about doing so! Both will be very informative and helpful.
When Should You Avoid Hiring A CFO?
Thankfully, there aren’t too many situations where going without a CFO is a good idea for a startup. Hiring an expert full time for your team can be very expensive, so as long as you can pay that price in your business, then you need to hire a CFO.
They will be an integral cornerstone of your business, and with them, on your side you will see massive growth! As long as you meet the above revenue guidelines and have watched your business grow in scale, a CFO is someone that you should hire and consult with right away. You will not regret hiring this expert in finance, and by working with them you will be able to take your business to even bigger heights!
when to hire a CFO
Conclusion: When Is A Good Time To Hire A CFO?
The bottom line is that hiring a CFO is a good decision if you care about the financial health of your business, want to scale up successfully and take your business seriously. A CFO, like any other position, is needed for many of the reasons we’ve addressed previously.
Companies such as Startup Tandem offer outsourced CFO solutions for startups and small businesses in a variety of industries. We have locations in Delaware and Santa Monica, California and help businesses all over the country with a variety of services. Learn more about Startup Tandem and the Tandem Culture and give them a call for a free quote on services.
We hope you have a better understanding of when is a good time to hire a CFO and wish you all the best!
