𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗖𝗼𝗻𝘁𝗿𝗼𝗹𝘀 𝗔𝘃𝗼𝗶𝗱 𝗗𝗶𝘀𝗮𝘀𝘁𝗲𝗿

There are risks when trying to change the world. However, founders should mitigate any risks.

Companies require a financial foundation to maximize limited resources and capture fleeting opportunities effectively.

If you have no controls in place currently, the key is to take the first step.

This post covers the importance of financial controls, some initial actions, and other factors to consider while balancing practicality and safety.

Why Scrutinize Finances?

Planning: Make informed decisions with accurate numbers. Strong controls allow you to quickly and reliably double down on business growth or cut costs on efforts with poor ROI.

Preparation: Show investors and lenders accurate reporting and clear governance (e.g. sales tax) and regulations to reinforce that you are capable of accepting funding.

Prevention: Avoid a serious incident unraveling your hard work. Whether intentional fraud or unintentional error (e.g. payroll mistake), any accounting error can be devastating.

Efficiency: Install good internal controls to scale business operations effectively and without disruption as you continue growing.

Install Financial Controls

Many startups have limited or no accounting and finance resources. Early controls be nearly free, set the stage level up, and as you grow.

Separate Responsibilities: Create checks-and-balances by having two or more people review contracts, payroll, expenses, banking, credit cards, and inventory.

Expense Policies: Clarify expectations with any significant expenses saying things like “travel in economy” and “any purchases over $___ require approval.”

Cybersecurity: Set up multi-factor authentication and ask accounts for alerts in case of unwanted activity. Consider basic training where everyone knows to be suspicious of unusual or fiscal activity.

Review the Numbers Yourself

Scrutinize statements and reports personally because even a trustworthy finance leader can make mistakes or misunderstand your intentions.

Compare any prepared reports directly to your bank and other monetary accounts. I’ve seen fancy reports and financial models that were so pretty that they could be hung in a museum, only to discover the numbers were more fiction than nonfiction. Meanwhile, employees and vendors don’t get paid by models.

"One of the earliest lessons I learned in business

was that balance sheets and income statements are fiction;

cash flow is reality." — Chris Chocola

Force yourself to understand large costs and significant variances from prior periods at least quarterly, and ideally monthly or more frequently. Periodically, review a few specific items. For example, randomly select ten invoices and client contracts to validate the details.

Overall, align your customer acquisition and other major spending against your goals. There may be legacy items or premium tiers no longer used but no one stopped paying.

I’ve worked with enough founders to know that while these suggestions may seem boring or wasteful, you could find thousands of dollars of savings in less than an hour.

Final Thoughts

While financial controls may not be your priority, a few steps can easily save money and potentially prevent a devastating event.

Consider hiring a fractional accounting firm and installing software when you have many transactions. This will set the standard for scaling efficiency and help prevent unintended mistakes. Seek professional advice on questions about employees versus contractors, sales tax, foreign entities, and tax filings and credits.

You can ask investors, banks, and law firms about installing new procedures and confirming existing ones.

The key is to get started. Don’t stress over the perfect solution. Build some processes now and keep improving your practices.

Financial controls can prevent and catch costly mistakes and fraudulent activity. You want to pay enough attention so that your company can take off and soar successfully.

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The photo is by Anna Nekrashevich who can be found here

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