M&A Due Diligence & Transaction Support

Business Fundraising Success! Now 5 Things You Should Do Immediately

business fundraising-1.jpgFunding a start-up — or acquiring additional capital for a business that’s already up and running — is no easy feat. In fact, there’s much to consider and prepare for even before engaging in discussions with potential financiers. (Read 5 Ways to Wise Up Your Approach to Business Fundraising.) But what happens once you’ve finally procured the funds you need? It’s important to be mindful of your financial strategy from the moment your fundraising is complete. In this blog, we’ll focus on 5 essential considerations for a disciplined approach that helps you balance your cash with your business goals. 

The Problem: Good Times Breed Bad Habits

Many business leaders watch each penny until their first big money raise. Then, once they’ve raised the needed funds, they feel like as if they’re sitting on a goldmine of cash – and loosen the reins on spending. During this stage, the biggest (and most common) mistake you can make is abandoning discipline. A loaded bank account can lead to sloppy habits (i.e., increased travel and entertainment expenses) that eventually put your business right back where you started: in need of cash.

 

The Solution: Create a Disciplined Approach

Do you have a capital budget mapped out? Has it been agreed-up by everyone? What is your operational footprint? To which business areas will you direct your newly raised funds? A surprising number of businesses get to the post-fundraise stage without having clear answers to these important questions. Early stage discipline is key at this point, and it’s up to you to set the right tone. Here are some ways to stay the course.

1: Reassess, reevaluate, and tighten up control.

Right away, implement adequate internal controls that will help you put your funds to the best use. This may start with a high-level analysis that leads to more actionable decisions. For example, revisit the reasons that prompted the need for a fundraise in the first place. Were you looking to invest in new equipment? Additional human resources? A bolstered marketing program? Stay true to those business needs – and be sure your budget is formalized and agreed-upon by the founders and key stakeholders in your company.

You’ll also want to ensure you have the right tools in place to support your financial objectives. For example, do you have cash-management tools to ensure employees stick to the budget? Have you communicated those measures and expectations to everyone in your company, so each team member is accountable? And finally, now is also the time to think about whether you have the right processes and resources in place to manage the controls you establish, which we’ll cover in the next few tips.

2: Get in front of your purchasing approval process.

Want to avoid unwieldly expenditures? Purchase orders and a requisition process allows purchases to be approved and vetted in advance of any spend. Far too often, accounting staff will receive bills and have no clear way to know who approved the expenditure or why – and if the services or goods have already been delivered, it’s often too late to ask questions.

Bank reconciliations are also a good way to identify any unusual items or expenditures that may otherwise be unaccounted for. Compare your cash balance against your book balance on at least a monthly basis; you can reconcile the two to make sure there are no surprises. Every expenditure matters, and this best practice will surface any spending that falls outside of the budget.

3: Invest in protecting your business.

After your first significant fundraise, consider purchasing insurance policies for cyber security and other critical assets. Are your technology assets covered? Do you need to secure trademarks or patents? Now that you have cash in hand, it’s a good time to put money toward protecting your business from potentially costly risks down the road.

4: Plan for new reporting requirements.

After you raise money from an outside source, like a venture capital firm, you’ll now be obligated to prepare and formalize monthly or quarterly statutory/investment reports of your business. These new reporting requirements, along with the process involved, are something to be mindful of as you implement your internal controls. Not only will you have to establish a formal reporting path back to the financier, but you’ll need to designate a resource to create and manage those reports. Do you have such a resource in place? 

5: Hire a financial leader.

Early-stage companies typically start off with a bookkeeper, usually a friend or family member, to handle the financial legwork. But now that business your is growing and you’ve got funds to spare, the time is right to consider hiring someone with deeper, more strategic experience. This could mean a Controller, a CFO or a third-party finance professional with experience in cash forecasts and setting-up and maintaining a proper budget.

A word of caution here: too many companies don’t recognize the need for financial intervention until it’s too late. I’ve seen it happen all too often – they suffer significant cost overrun or other poor financial decisions that are difficult to untangle or recover from altogether. (Read 6 Fatal Flaws that Can Lead to Emergency Restructuring.)

Remember, as your business model becomes more complex, so will your finances. It’s vital to your business to have internal controls in place, and a resource who can handle your growth and prepare you for a financially secure future. If it’s too soon to bring on a full-time person, consider leveraging a temporary resource or consultant to lay the groundwork and keep you headed in the right direction.

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