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Resource  21, Jul 2012

Awaken your inner CFO

By

As the founder of a startup you wear many hats. Some days you are the CEO – other days the CTO. And some days you need to be the CFO. Cultivate your inner CFO by developing a love for numbers and analysis.

Some start-ups make revenue in year-one of operation. However, even if you don’t have revenue to count, you can still get inspired by counting customers, and tracking the company’s productivity and expenditure.

There are answers in the numbers. If you do financial analysis every six months, you can reverse engineer from the books and create new products and services. Analysing the company’s financials gives you a focal point to understanding what to do next in the business.

While the creative side of you is excited by creating an exceptional product, your darker half is excited by insights from numbers. When you are in money situations, switch from a concerned, enthusiastic creative – to a rational, cold and above all, unemotional, CFO.

Your inner CFO takes a little longer to read contracts, a little longer to pry into the underlying value of a deal, a little longer to study the motivations of those around you.

Meet some folks who want your #caaash

  • The supplier who renegotiates the terms after they sign the contract. They sniff around the industry and work out they are your main supplier. They use this position to gain bargaining power, and push up the sale price.
  • The corporate procurement officer who is steeped in the art of negotiation and locking you into long term contracts that indirectly take control of your business. They are often ex-lawyers who become group buyers, sitting inside MNCs at a regional and global level.
  • The company employee who repeatedly asks for salary raises. She realises she pulls more sales in than any other sales persons in the business, and develops a ‘queen of the hill’ mentality. She will interrupt you and badger you constantly for a more #caaash.
  • The overzealous SME or ‘Laoban’. This crafty individual is a sage when it comes to driving a hard bargain. He empitomises the SME street fighting. He can dress a wolf to appear as a lamb.

Until the day you can afford a Jason Child or a David Weiner (CFOs of Groupon and Zynga respectively), you have to do battle with these opponents and make the tough financial decisions.

Here are a few things you should hear your inner CFO whispering to you.

Establish a budget

Either have an overall budget for expenditure each month, or set budgets for individual line items like salary, marketing and research and development. When you set a budget, not only do you keep expenses under control, but you can control negotiation with stakeholders who are trying to get more #caaash out of you.

When can appeal to the higher authority by saying ‘Today I can approve an estimate of $500, but for $700 I need to go back and talk to my CFO’.

The #caaash belongs to the company

Create a clear distinction between your personal and company #caash. In so doing, you can clearly see your rate of spend from eye balling a single company bank statement.

You can also spend prudently. If staff ask for a salary raise you can say ‘I’ll have to check with the shareholders. The money doesn’t belong to me’. You may be a shareholder and a director in the business, but when it comes to decision-making you separate the two and create more accountability.

Use a single account to pay bills

Bookkeepers love CSI moments. CSI moments are created when directors of companies who pay bills using several sources including personal and company bank accounts, PayPal accounts and credit cards. The bookkeeper, after spending hours of time analysing statements, discovers the identity of a transaction, and experiences a ‘CSI moment’.

CSI moments boost a bookkeeper’s sense of accomplishment, but for clients it translates into higher fees. Your firm doesn’t need CSI moments.

Set up a finance email address

Create a distinction right down to the way you communicate with stakeholders on issue of #caash. If you get a call from a supplier asking for an invoice to be paid, ask them to write to finance@… This way it will be easier later to employ a person later to take over the company’s finance correspondence.

More importantly, this separation allows you to adopt a different tone. The tone you communicate as a CEO and may be different to your tone as CFO. For example if the firm’s transactions are mainly accounts receivable, then your primary stakeholder are customers who owe you money. Your inner CFO may be more aggressive dealing with this stakeholder.

If your primary stakeholder is staff because you have a large payroll, then your CFO is more likely to be peaceful.

I smell a bad money deal

In the pursuit of revenue, differentiate between good and bad money deals. A bad money deal is where the one party tries to leverage the deal such that the other party carries all the risk.

Often a bad money deal involves a lot of #caaash, so on the surface the deal is appetising. However on closer inspection, you discover the deal is rotten. If you took the deal, you may make a lot of money, but it could cost you customers, staff and even the business.

Run every large deal passed your inner CFO. Study the underlying value of the asset. You may hear your inner CFO say ‘put your money in the bank at 7 percent’. Invite good money into the company. Leave the bad money at the door for your competitors.

Time to get a CFO

CFOs are a powerful piece to have at the table. As the valuation of your company increases, and you need to raise larger sums of money, consider bringing on a CFO.

In the fourth quarter 2011, on the eve of Groupon’s IPO, management changed how they reported revenue. Jason Child was part of the genius behind the move.

The new metric painted a rosier picture of the company’s financial position. Analysts argued the new metric was non-GAAP. Companies listing are required to disclose their financial reports following GAAP (general accepted accounting principles) so analysts worldwide can share a common understanding of the stock and compare apples with apples.

There is little doubt this change in the metric achieved a higher listing price for Groupon’s stock, which was good news for the founders, stock-option holders and the venture capital firms.

About Futurebooks

Futurebooks is Singapore’s and Hong Kong’s most progressive bookkeeping company. Futurebooks offer affordable incorporation, bookkeeping, business planning and brokering, to entrepreneurs with big ambitions.

Whether your goal is to be acquired or to be more profitable this quarter, Futurebooks provide planning to keep your business on track and bookkeeping services that streamline the journey.

Using cloud computing solutions like Intuit’s QuickBooks Online, Xero, SaaSu, DropBox, Workflowmax, Vend, salesforce.com and Google Enterprise, Futurebooks are able to offer clients productivity improvements and reductions in the cost of accounting.

Visit our website and chat to us live or follow us on Twitter.

About the author

Anthony is the founder of an accounting and analytics firm Futurebooks Pte Ltd. Anthony is obsessed with helping start-up companies incorporate, conduct industry analysis and develop positioning. He has ten years experience in media and marketing, and was founder of Firestarter, a digital marketing agency.

This post was originally published on Futurebooks as Awaken your inner CFO.

 

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