There are few moments in the life of a business as consequential as Launch Day, the moment you finally get to lift the veil on the project you’ve been working on. It’s a heady time, one that is a mix of excitement (“Holy cow, we’re finally doing this!”) and anxiety (Holy cow, we’re actually doing this!). Though I work with businesses at every stage of their life cycles, I still get a thrill out of being a part of an entrepreneurial kickoff.
Over the course of my career, I’ve helped guide what seems like countless startups and young businesses as they’ve launched and scaled. Before cofounding my own accounting firm, I served for a decade as the finance director at a venture capital outfit that backed portfolio companies from coast to coast. In that capacity, I had the chance to work with numerous startups, making sure that their organizational bedrock was established in such a way that it could support the future growth of the business.
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And while I in no way advocate that a founder takes their eyes off the construction of the product or service they are building, I do wholeheartedly encourage all entrepreneurs who are inching closer to making their startup dreams a reality to create time and space in their efforts for these three foundational elements. I admit, these items are not the most fun to grapple with, but any business leader who avoids them during the early stages of their startup’s life will certainly be reminded of them later on when they arrive at a problematic impasse.
All entrepreneurs who are inching closer to making their startup dreams a reality need to create time and space in their efforts for these three foundational elements.
So, here they are — three foundational finance considerations you can’t overlook when launching your startup:
- Be sure to pick the right corporate structure.
There will always be tax and cash flow implications to consider for your business, and the vast majority of these will be tied to your business’s corporate structure. Most startups that elect to raise funds normally opt to be a C-Corporation (or C-Corp) registered in a business-friendly state like Delaware. The primary reason for this is because being a C-Corp provides the easiest avenue for raising funds, which is essentially selling stock in your organization. Also, there is a highly favorable tax credit available for small business stock if all criteria is met when a business is sold (or an “exit” in startup lingo). Being a pass-through entity (a Partnership, LLC, or S-Corp) has tax advantages, but it has limitations on who can be an investor and how ownership is granted. When choosing your corporate structure, do so with your future financing needs in mind.
- Make plans for the capital you’ve raised and your cash flow.
I see a lot of pre-revenue companies raising large amounts of cash with the expectation that it will last a specific amount of time. Having a spending plan — and making consistent updates to that plan — is a must. No one can predict the future, so just assume everything is going to cost more and that your money will last less time than you expect. Having a flexible financial road map will help ensure that you don’t run out of cash or get into a position where you have to take unfavorable terms in a pinch. Consistently monitor that road map and update it regularly.
- Have a good partnership with your advisers.
You will be leaning heavily on your attorney and accountant (CPA) during your founding and funding processes, but don’t let those relationships stop there. Your attorney, your bankers, and your CPA have a tremendous amount of insight and expertise that they can draw from, quantitatively and qualitatively, that will benefit you and your business. Lean on their experience to avoid the mistakes they have seen others make. No questions are stupid (and I mean that), and they really do want to help you succeed — after all, they do well when you do well. Don’t treat them like simple vendors. Approach them as business partners.
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Success requires more than a product
The most high-performing startups I’ve ever worked with are the ones that have taken the time to establish strong business pillars as early as possible. I completely understand that it feels like there are a million demands on your time as a founder, but future-you will be so thankful that present-you gave the above items the time and attention they each deserve.
Your product or service will be what earns you revenue and shoots your startup upward. But it’s your business structure that will support you at those new heights, minimizing your chances of crashing back down.
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January 18, 2022 at 12:07AM by Kyle Bryant, Khareem Sudlow
