Let’s face it, most founders dread dealing with anything that has to do with the back office. If it was for them, a typical workday time allocation would look something like this:
If you want to raise capital, whether it is from friends, family and fools, angels, or VCs, you better increase that “Everything Else” category to include having your financial house in order. Here are the five things you will need to maintain:
Kind of a no-brainer. Open a bank account and then fund it according to the funding you and your founding partners have agreed upon. And please, please stop using your personal credit card to pay for company expenses.
Keep your books in order and up to date. You probably don’t have thousands of transactions a month anyway. So, get yourself a copy of QuickBooks, connect it to your bank account (see above), and reconcile it at the end of each month. If you don’t want to learn how to do this (it’s easy, but I understand), hire someone to do it for you.
Capitalization Table / Stock Register
Cap tables and stock registers can get a little complicated if you have different classes of shares (common, preferred), stock options, phantom shares or restricted shares. Sometimes lawyers maintain stock registers (if you engaged one), but they are typically not useful for financial analysis. Cap Tables show the different classes of shares, vesting schedules and ultimately the fully diluted ownership of the company. A good cap table also includes a look into the future if you plan on raising a next round of capital. There are online services that help you put a cap table together, but a good financial advisor will help you prepare and maintain one that is tailored to your situation, and ultimately very valuable and useful.
12/24 Month Budget
Prepare a budget for the next 12, better, 24 months. This exercise will help you think about milestones you want to reach, but it will also give you a good idea how much money you are going to need to raise. It can be done in Excel, and it is always a good idea to have financial professional help you with it. A good consultant knows what typical burn rates in various industries are, and he or she can benchmark your estimates with industry averages.
5 Year Financial Model
This is where it gets a little more complicated, and where you would typically want to engage a professional. Expanding on the above budget, you need to prepare a long term model that shows how your start-up grows over a time horizon of five years, based on a defendable set of assumptions. The model needs to be bottom-up, not top down. It needs to show your sales and marketing strategy and how you expect to grow your business. A good financial model is a management tool that you can use to learn about the underlying dynamics of your business, and that will help you make better educated strategic decisions.
That said, your time allocation should probably look more like this: