… if my books are already handled so well by an accountant?
This is one of the most common questions I hear after asking founders about how they manage their finance.
In the world of startups everybody seems to know the difference between back end and front end developers, between iOS and Android, or between mobile and web applications. Same for designers: very few can confuse a graphic designer with an UX designer, for example.
Yet, although there is a complex structure beneath the surface of corporate finance, 9 out of 10 founders treat Finance – one of the key elements in company management – as one thing, where all tasks are alike and expected to be done equally well by one person.
There’s much more to it, but let’s start with these two main worlds.
Bookkeeping & Tax:
Makes sure that all business transactions are properly recorded and statutory financial statements (incl. tax-relevant ones) are accurate and filed on time. Sounds good, requires skills and qualifications, and companies are simply obliged by law to do so. Nevertheless, the frequency and quality of financial information required by your tax office are totally irrelevant for you as the business owner, for your managers, and investors.
FP&A and Controlling:
Unlike bookkeeping that dwells in the past, these guys spend 80% of their efforts dealing with the future and help owners, investors and managers make better decisions by supplying relevant, transparent and actionable financial information. They slice and dice each item of your P&L, cash flow and balance sheet to analyze and evaluate the financial health of your business. They are the first point of contact when you need to know your performance metrics. They help identify the timing and the necessary size of a financing round. They understand the unit economics like no one else in the company. They consolidate dozens or hundreds of various assumptions into a solid financial model that helps you see, in the finest detail, how a startup idea can be transformed into a money-making business. They are your early warning systems for upcoming threats like cash deficit. They easily deal with uncertainty and clearly explain the future outcomes of today’s actions, and suggest alternatives.
20% is for the past – and it’s for creating a picture that’s way broader and clearer and 12+ times more frequent than any audited annual financial statement with a “true and fair view”. True and fair statements have their own faults: they are not useful, not actionable, not transparent, and hard to understand. And they are timed in the worst possible way: what’s the real value of a financial statement that’s prepared once a year, 3 months after the year end, while your runway is less than 6 months?
I’ve seen CEOs of startups hire CFOs and expecting them to process incoming invoices – while they thought that strategic financial planning is CEO work. I’ve seen CEOs firing CFOs because they thought that CFO work could be done cheaper by their outsourced bookkeepers. Don’t be that guy 🙂